Gulf banks 'need more provisioning'
Basel (Switzerland), June 28, 2010
Some Gulf banks need more provisions to scrub themselves clean from problems from the credit crisis and their lending must become more prudent to avoid future bubbles, the head of the Arab Monetary Fund said.
Jassim Al-Mannai, director general of the Abu Dhabi-based AMF, also told Reuters in an interview the Arab economies will grow around four percent this year but that he saw no threat from inflation.
Lending growth in the Gulf economies remains sluggish as the region's banks suffer from shrinking margins and bad loans from the crisis.
'I would not say everything has been addressed, no problems at all,' Mannai said on the sidelines of the annual meeting of the Bank for International Settlements.
'I have to be realistic. Some of the banks need to take more provisions. They have to be careful not to repeat the same practices before.'
'They have to address some problems inherited from crisis through more provisioning, through prudent lending policies. I don't think banks will be able to provide the same amount of credit as they used to before. They have to be more selective.'
In the UAE, banks are likely to book specific provisions in the third quarter against loans made to the troubled Dubai World conglomerate after the state conglomerate reached a deal in principle to restructure $23.5 billion in debt. UAE banks have an estimated exposure of $15 billion to Dubai World.
Provisions of UAE banks for non-performing loans declined to 35.2 billion dirhams in May from 36 billion dirhams while general provisions edged up to 13.6 billion dirhams last month.
'In the future they will have clean balance sheets and they can start fresh lending without any handicaps,' Mannai said.
'We have to think seriously about the lessens of the crisis. We have to avoid bubbles.'
Mannai was optimistic that the Arab economies would see positive growth this year without threatening the price rises they saw during the pre-crisis boom period.
'This year the situation for the Arab world will further improve. We're talking about 4 percent or more than that for the Arab economies,' he said. 'We have a very low inflation rate. For the time being it's not a threat. In the GCC we're talking about 2 or 2 something percent.'-Reuters