UAE banks told to take quarterly loan provisions
Abu Dhabi, November 14, 2010
UAE banks have been told to take provisions for bad loans on a quarterly basis, in long-awaited guidelines from the central bank aimed at bringing the banking system in line with international standards.
Banks in the UAE have suffered from substantial exposure to bad loans, particularly from the region-wide real estate slump and lending to state-entities, which hit cities like Dubai hard. Provisions of UAE banks have continued to rise in 2010.
The central bank said it had introduced new guidelines to classify loans and the levels of provisioning necessary for each of them.
'The objective of this set of regulations is to identify a framework suitable for evaluating the loans and advances portfolio, in line with standards adopted by the Basel Committee and international best practices.'
'All banks and other financial institutions are required to make provisions (specific and general) required for this regulation and deduct them from the profit and loss account at the end of each quarter and not delay them till the end of the financial year.'
The Basel Committee on Banking Supervision is the standard-setting authority for international banking regulations.
'It is clear the central bank is tightening norms after what happened in the recent past with Dubai World and the new financial landscape,' said a banking analyst.
'The central bank is trying to make asset quality classification more comparable between banks and reduce the banks intervention in tweaking their figures,' the analyst said, asking not to be named due to the bank's policy.
Banks must also make general provisions 'for unclassified loans equal to 1.5 per cent of risk weighted assets', the central bank said. Government loans as well as loans of state-owned or state-guaranteed loans are exempt from this requirement.-Reuters