Showing posts with label Central Bank of UAE. Show all posts
Showing posts with label Central Bank of UAE. Show all posts

Friday 16 December 2016

Misleading Report about UAE Central Bank “Changes” to AML Regulations

Another cold Dubai December and to top it off AA's Biggles' hat was at the cleaners.
If you’re like AA, you might have been confused when you read WAM’s 14 December 2016  (Arabic version here) article or others in the media that the Central Bank of the UAE had amended three paragraphs in Circular 24/2000.

Without any explanation or context provided, a reader might conclude that the CB UAE has only recently moved to prohibit the opening of numbered or anonymous accounts or require fairly standard CDD on customers. 

If you read the article in Gulf News yesterday, that's certainly the impression you'd get from the article's subtitle:  "New rule strictly prohibits the opening of accounts with assumed names or numbers, among others".

If true, this would represent a serious shortcoming in the UAE’s AML/CFT efforts.
However, it’s not the case. 

The 2000 Circular already contained such requirements.  Article 4 in that Circular is quite unequivocal, e.g. "يمنع منعا باتا فتح حسابات ".  The English version is similarly strict.
So what’s going on?

The three articles are being amended to permit reliance on UAE national ID cards as proof of an individual's identity.  The 2000 Circular only permitted the use of passports. 
Someone at WAM or CBUAE missed the bus by not including this information.

AA did not. 
Ever since the fateful day pictured above, AA has been doubly careful or at least tried to be.

Wednesday 21 July 2010

What Were They Thinking?: Central Bank of Kuwait Approves Burgan Bank Share Buyback


When I read announcements like the one below (that the CBK has given permission to Burgan Bank to buy back or sell up to 10% of its shares) or the periodic announcements on the UAE exchanges reporting this or that bank's share buyback activity, I've got to wonder "what were they thinking"?  Or maybe "were they thinking at all?"  To be clear, here I'm not just questioning what the bank itself is thinking so much as what its apparently overly friendly or somnolent regulator is.

Those not suffering from banker's ADD will recall that Burgan Bank had a massive rights issue earlier this year -  April to be specific.  360 million shares.  Equivalent to a 34.57% increase in capital.  A Rights Offering that needed two stages because in the first Burgan managed to only place 85% of the amount.   If you have a banker's memory and don't remember, here's the link.

While one can never be certain, presumably Burgan raised this massive amount of capital because it needed it.   Perhaps, it was even encouraged by the Central Bank to do so.  To now partially decapitalize the bank seems not to make much sense though I suppose I could have missed the miraculous turnaround in the Kuwaiti economy in the last three months.  The boom in the KSE. The restoration of imagined ruddy health to the investment firm sector.  The disappearance of problem loans.

Looking southward,  one might also expect that the Central Bank of the UAE would stop or reduce sharebuybacks by local banks on the theory that in these difficult times banks need all the capital they can muster to provide a buffer against  problems. Though again I suppose difficult times may have ended. A dramatic recovery in the UAE.  The start of a new real estate boom.  The concomitant collapse of problem loans.  A new improved "Vision".  At least 20/5 this time!

It really does pay to pay attention as they say.

In cases like this where the decision seems contrary to good sense, it makes sense to look for additional motives.  As we all know, regulators are charged with looking out for the health of the banking sector and the economy as a whole - and not just that of this or that bank.

That suggests the Central Bank of Kuwait's decision is motivated by a higher  and more pressing need: raising Burgan's share price to a more appropriate level -- defined as one that makes its shares worth more in a collateral pledge and which increases the equity and perhaps income of its owners (FVTPL).  And goal so compelling and universal that a regulator "down South" might share a similar view, though of course for different banks.

As all good bankers know it is a cardinal rule of commercial banking to "have a second way out".  Even given the apparently generous pricing mooted on United Gulf Bank's purchase of 13% of Burgan is it really wise to rely solely on this "auction" to achieve this nationally important economic goal?  Apparently not!

And finally, yes, Burgan does hold Treasury Shares (some 29.6 million of them if I'm not mistaken) though I rather doubt they sought the CBK's approval because they want to sell them.  And of course, in such a case, the CBK could have limited its approval to a sale only.


[13:28:52]  ِ.موافقة بنك الكويت المركزي لبنك برقان بشراء ما لا يتجاوز 10% من اسهمها
يعلن سوق الكويت للاوراق المالية ان بنك الكويت المركزي وافق بتاريخ ‏
ِ21-7-2010 علي طلب بنك برقان بشراء او بيع مالا يتجاوز 10%‏
من اسهمه المصدرة لمدة سته اشهر اعتبارا من تاريخ انتهاء الموافقة ‏
الحالية في 5-8-2010 وذلك مع ضرورة الالتزام بما وضعه البنك المركزي
من ضوابط وشروط في شأن تملك البنوك لاسهمها اضافة الي ضرورة الالتزام
باحكام المداة ( 115 ) مكرر من قانون الشركات التجارية واحكام القرار ‏
الوزاري رقم (10) لسنة 1987 وتعديلاته بموجب القرارين الوزاريين رقم (11) ‏
لسنة 1988 ورقم ( 273) لسنة 1999

Friday 9 July 2010

UAE Credit Cards Among World's Costliest

As reported in The National:
A survey of more than 170 cards offered by 40 banks operating in the UAE shows the average annual interest rate is 33.9 per cent, more than double the average rate in the US and almost twice the average rate available in the UK.

Two percent over the average rate last year.  Apparently, First Gulf Bank, Mashreqbank, and DubaiFirst offer platinum cards with APRs of 40%.  Wonder what they offer their less preferred customers?

But I guess somebody's got to pay for the Dubai World provisions not to mention AlGosaibi, Saad and perhaps Dubai Holdings.

بسم الله الرحمان الرحيم
 صدق الله العظيم

Monday 28 June 2010

Central Bank of UAE Preparing Provisioning Guidelines for UAE Banks for Dubai World Exposure


Quoting Reuters, Emirates Business 24-7 says that the CBUAE has advised banks not to take specific provisions against their Dubai World exposure pending the CB's release of guidelines on provisioning.

As discussed in February, the CBUAE is in the process of revising its general guidelines for loan classification and provisioning.   

No doubt they will want to do a bit of "fine tuning" regarding guidance for Dubai World.

Friday 28 May 2010

You Said What?: No, Really You Did? The "Nonsense" of Transparency


Indeed you did as this extract from a BIS publication shows.
Cross-border investment flows should be welcomed by recipient countries and encouraged by source  countries, as many countries in our Area need to set rules to enable the establishment of large projects for  the purpose of creating jobs. That will also enhance peace and stability on the national level, which will certainly improve the prospects for the regions in this vast Area. Any help by the World Bank in improving and unifying investment laws in addition to watching their implementation, will go a long way in achieving this important regional objective.

Sovereign Wealth Fund source countries should also be interested in investing in mega projects in the region for three reasons, as follows:
1. The Global Financial Crisis proved that investments through Industrialized Advanced Countries’ investment banks are not totally risk free.
2. There is a need within SWF source countries to safe guard flow of food imports at reasonable prices, and the possibility for incorporating companies as direct investment projects in countries in the region is a realistic possibility, when investment laws are enacted and maintained at international standards.
3. SWF source countries should be interested in the maintenance of social order, peace and stability in the regions of this Area.

Another reason that makes me think that SWFs from our region might change the flow of their direct investments, is that once we see the proposed Regulations re Sovereign Wealth Funds in the Industrialized Advanced Economies start being implemented, when economies in the West start doing well, more questions will be asked and more forms will become necessary to fill and more disclosure and transparency will be demanded. This behavior will signal that there is no strong need for foreign capital in the West, and that the political mood has changed.

Therefore, we might see gradual tightening of the scrutiny on capital flows from SWF countries, at one stage, especially funds that are destined for direct investment in certain companies.

Faced with all this nonsense, SWFs will certainly come to the conclusion that it is time to change strategy. This could make SWFs avoid direct investment in certain companies, or even avoid direct investment in all companies, and become more of passive investment vehicles in the West. As, SWFs have large sums to  invest, this might make them direct part of their investments to existing or newly created companies in the region. This situation, if it happens soon, will lead to creating a new regional developmental cycle.

Thursday 29 April 2010

Dubai Holdings Commercial Operations Group - Delay in Financials

From today's Nasdaq Dubai.
29 Apr 2010 - 09:34:26

Dubai Holding Commercial Operations Group LLC (“DHCOG”) has extended the publication date for its 2009 consolidated financial statements by two weeks until 16 May 2010 as DHCOG has extensively realigned its operating businesses, undertaken a conservative revaluation of its real estate portfolio, and has conducted a thorough impairment testing exercise across all its projects.
These steps have resulted in a slight delay in completing the consolidation process of its financial statements.
The expressions "conservative revaluation of its real estate portfolio" and "thorough impairment testing exercise across all its projects" are unlikely to be accompanied by bumper earnings for 2009.

Monday 5 April 2010

UAE Banks Seek to Change Liquidity Measure - Not A Smart Idea

This sounds like a bad idea.

The fundamenal business of commercial banks is borrowing short and lending long.

If customers suddenly want their deposits back or if interbank money gets hot, it can cause  a world of trouble for an unprepared bank.

So a safety margin needs to be maintained.  

Trusting bankers to do the sensible and prudent thing has been proven false so many times that it should be clear that regulations are required.  On this issue and many others.   And that many times the regulations  will restrict business to prevent bankers from getting themselves into trouble.

What's even more at issue here is that in aggregate UAE banks are already over lent in comparison to core customer deposits.   

Here's Kamco's report with some statistics.  

Also note the very high compound annual growth rate in loan portfolios - a sign of credit distress to come.  Another reason for prudence on this issue.

Thursday 11 March 2010

Banks at DIFC Legally Barred From Charging Assets in UAE


Emirates Business 24/7 reports that banks operating out of the DIFC are legally incapable of taking a charge on collateral to secure their loans because only banks regulated by the Central Bank of the UAE may do so.  Banks within the DIFC are not subject to Central Bank of UAE regulations.  Rather the DFSA regulates them.

Presumably authorities will be keen to encourage lending and therefore will expand the law to allow banks regulated by the DFSA to register/perfect charges on collateral.

As to the second constraint, this is not uncommon.  There are restrictions for example on "Wholesale Banks" in the Kingdom of Bahrain in terms of deposit taking from residents of the Kingdom.

Sunday 7 March 2010

Majid Saif AlGhurair Resigns from RAKBank

Here's the press release.

Anyone who knows why please post.

If you know what "Final Greetings" are, please also post on that.  It sounds rather ominous.  Sort of like a "final warning".

NBAD Requests Cancellation of Approval to Buy Back Shares

 

A rather curious announcement over at the ADX.  The UAE SCA agreed to NBAD's request to cancel its previously granted permission to buy back up to 10% of its shares.

Why is this strange?

NBAD had obtained permission earlier from the SCA to re-purchase its own shares.  The decision whether to purchase shares or not was entirely in NBAD's hands. 

In other words, it needed no official sanction not to purchase it shares.  And therefore did not need to obtain cancellation of the authorization.

As you'll recall, the IMF had expressed some concern about the capital levels of UAE banks.  Also when the government has given you "rescue" capital, it would be a bit ungrateful if you were to buy out your existing shareholders.  I suspect that the Central Bank had a quiet word with NBAD to encourage them to get the cancellation.  In that way the CBUAE does not have to rely on the discretion of NBAD not to repurchase its shares.

Since NBAD is one of the more conservative local banks, if I'm correct other banks with similar permissions may suddenly develop a CBUAE-sparked desire to cancel them.

Wednesday 24 February 2010

Central Bank of UAE - Lifts Restrictions on Bonus Share Issue for 2009

 

You' recall earlier that the CB UAE  had imposed restrictions on UAE banks' dividends for 2009, limiting cash dividends to 50% of net profit and script or bonus share dividends to 60%.  The given rationale for the measure being to preserve liquidity and capital within the banking sector.

At that time I posted that the restriction on script dividends seemed strange as the issue of bonus shares actually was a stronger form of capital retention than a mere ban on the payment of cash dividends.  

The neat thing about bonus shares is that a shareholder desiring cash can sell the extra shares and thus receive cash, though in doing so he or she reduces his or her relative percentage ownership in the bank.  No cash leaves the bank because this is a secondary market transaction.  Cash is exchanged between shareholders.  Bonus shares also have a downside:  they dilute future earnings per share.

Apparently, bankers in the UAE "shared" my view and persuaded the CB to rescind its restriction on 2009 bonus share issuance.  Bonus shares up to 100% of 2009 profit may therefore be issued.  The article notes that this restirction on dividends was the first time the CB UAE had intervened in such a fashion.  Also it noted that bankers argued that stock dividends actually strengthened capital.  Shareholders are said to be happy though not as happy as they would have been with bigger cash dividends.

The limit on cash dividends was not lifted or modified.

Tuesday 23 February 2010

Central Bank of UAE - January 2010 Banking Indicators Published

 

Of note are the continued  high level of provisions.   January's provisions were marginally higher than December's which indicates that problems still remain.

Thursday 18 February 2010

Central Bank of UAE Limits Bank Dividends for 2009


AlKhaleej Newspaper (Dubai) reports that the CB UAE has written to banks advising them not to pay cash dividends more than 50% of 2009 profit and not to issue bonus shares more than 60% of 2009 profit.  You may have seen the article in The National (Abu Dhabi) which makes this sound like a "request".  The language here is of an "order" or "decision" -   قرار

Some experts are said to favor this move as it forces banks to strengthen their financial positions.  And some baniks as well no doubt relieved that a CBB order gives them cover from angry shareholders about a lower payout ratio.  On the other hands other banks objected asserting that the Board of Directors and shareholders were the ones best qualified to determine how much of current year profit needed to be retained.

7 banks are named as having received orders to lower their payout ratios: Dubai Islamic, Sharjah Islamic, Abu Dhabi Islamic, Investbank, United Arab Bank, Bank of Sharjah, and National Bank of Umm AlQuwayn.
The article states that the majority of the boards of national banks have proposed partial distributions of profit contrary to expectations of greater conservatism in dividend distribtuions in order to strengthen banks' financial positions in order to meet fundamental challenges in the coming stage.

That I think is understandable.  I was once told by an "old grey beard" from the GCC that there were two things GCC investors loved:  real estate and dividends.  No cash dividends would be a difficult pill to swallow.

The only question I'm left with is - why the restriction on dividends in the form of additional stock? As part of the process of granting stock dividends, the bank would capitalize the dividend amount in paid in capital removing it from retained earnings.  Once this is done that amount (like the rest of paid in capital) is not available for ordinary dividends.  In fact, it is not to be distributed to the shareholders -usually - until the dissolution of the company.  One would think the CBB would encourage stock dividends as a way of preventing cash dividends this year.    Anyone out there have any ideas?

Tuesday 16 February 2010

Central Bank of UAE - New Regulations on Loan Classification and Provisioning Immiment

 

AlKhaleej Newspaper (Dubai) reports on an interview with Saif Hadaf AlShamsi, Chief Executive Director of the CB UAE's Treasury Department that the CBB has prepared the final draft of regulations on loan classification and provisioning and submitted these to the Board for approval.  Approval is anticipated very shortly.   The regulations will apply to banks, finance companies and investment firms.

The new regulations contain the following:
  1. A loan will automatically become substandard when payment is delayed 90 days from due date.  The current standard is 180.  90 days is pretty much the global norm.
  2. Mandate a general reserve of 1.25% of total assets (a provision for the unrated portion of banks' portfolios).  (I'm not sure of the exact translation here of "الجانب غير المصنف في محافظ".  I believe this means for risks not recognized in specific provisions.  If anyone has a better translation or explanation, please post a comment).
  3. Require that all borrowers (individuals, public sector, and private sector) be classified into one of five categories: Performing (Normal) Loans, Watch (Under Review) Loans, Substandard Loans, Doubtful Loans, and Loss.  Covered firms will have to have detailed procedures for classification and monitoring of their loans.
  4. Each of the five categories will also have its own "days overdue" rule as well as required (presumably minimum) provisions.
  5. Implementation will be immediate upon Board approval and financial statements will have to be prepared accordingly.   He noted that last October the CBB advised banks and other covered firms to prepare.
  6. Also during October, firms were advised to transfer any interest accrued but not collected to a special account "Suspended Interest".
Finally on another topic he noted that UAE banks had excess liquidity with the CB UAE.  And that not a single bank has taken any "emergency" liquidity funding.  You'll recall that after DW' November announcement of its intention to reschedule certain of its subsidiaries' debts, the CB UAE had said it would provide liquidity if required. 

The revised standards represents a big, if somewhat belated, step forward for the UAE.  My hope is that this information will released in the aggregate by the CBB  (system wide) and by individual banks about their own portfolios in their financials.

Saturday 6 February 2010

UAE Central Bank Governor Outlines UAE Bank Support Measures


Here is short two page speech in which HE Sultan Bin Nasser AlSuwaidi, the Governor of the Central Bank of the UAE, outlines the various programs undertaken by the UAE Government to support its banking sector.  Note:  This does not include the steps taken by Abu Dhabi to provide financing support to the Emirate of Dubai.

Not mentioned here are other initiatives being taken by the CB UAE, such as changing the non accrual rule from 180 days to 90 days, implementation of Basel II, etc.

Tuesday 2 February 2010

UAE Noor Bank Calls for More Support For Banking Sector - Central Bank Says Not Now

 

Today's The National quotes Hussain al Qemzi, the chief executive of the Dubai-based Noor Islamic Bank as saying that UAE banks need another AED20 billion (US$5.4 billion) to AED 25 billion  (US$6.8 billion) to help shore up their financial positions.  The Federal Government has already provided some AED 120 billion (US$32.7 billion).  It's unclear if Mr. AlQemzi is calling for a capital (equity) injection or additional liquidity support.

To put his request in context according to the 31 December 2009 statistics published by the Central Bank of the UAE, total bank equity at year end (before current year profits) was some AED231.4 billion (US$63.1 billion).  And monthly provisions are running just over twice the lower amount (AED 20 billion).

In a separate article the Governor of the Central Bank of the UAE was quoted as saying at the opening of Deutsche Bank's Branch in Abu Dhabi: "There is no need for more liquidity injections for the time being," Al Suwaidi told reporters. 

Same market, two views.  
It would be interesting to know what the basis for Mr. al Qemzi's view is.  That is, how he got his precise figure.

Tuesday 26 January 2010

UAE Banking Statistics December 2009




The Central Bank of the UAE has published its "Banking Indicators" for December 2009.

As noted, the figures for 2009 are provisional and subject to revision.  Also the Total Private Funds (shareholders' equity) does not include current year earnings.

Once 2009 fiscal year audits are completed and approved, then it will be possible to perform an in-depth analysis of the UAE banking sector's performance.

In the interim, as a general comment, there were no significant changes or obvious signs of significant distress.

Total assets in the system are down some AED12.5 billion (US$3.4 billion) from November.  That is a fluctuation of less than 1%.  Year over year, total assets are up some AED62.9 billion (US$17.1 billion) an increase of 4.3% over 2008.

Looking at December 2009 figures, loans are down AED9.4 billion and personal loans up AED0.6 billion compared to November 2009.  When December 2009 figures are compared to December 2008  the increase is AED24 billion and AED3.8 billion respectively. The changes are respectively 1% and 0.3% from November 2009  and roughly 2% from December 2008.

The closely watched specific provisions number was AED32.6 billion in December roughly the same as November's AED32 billion, significantly above December 2008's AED19.7 billion.   General provisions for December 2009 were AED10.7 billion versus AED9.3 billion in November and AED5.3 billion in December 2008.  Here the percentage changes are more dramatic when December 2009's figures are compared to December 2008's:  65% for specific provisions and 102% for general provisions.

Monday 18 January 2010

Central Bank UAE to Tighten Provisions?



Emirates Business reports that the CB UAE will soon issue regulations tightening loan provisioning in the UAE:
  1. Non Performing Loans:  Changing the definition so that loans past due 90 days or more will be classified as non performing.  The current standard is 180 days.  In most jurisdictions it is 90.  This initiative was reported in November.  Earlier post here.  It's important to note that most of the UAE's banks seem to be using a 90 day rule already.
  2. Mandatory Provisions:  Requiring banks to hold a general provision between 1.25% and 2.0% of their outstanding loans.  While not state presumably the provision level will be scaled by type of asset, e.g., consumer loan, credit card, commercial loan, etc.
The effect of these moves will be to strengthen the banking sector's ability to withstand a hit on an aggregate basis.  As history shows, however, regulations are not a bar to unwise underwriting and business decisions.  And if there is one group who suffer from hereditary ADD, it is bankers.

Monday 21 December 2009

Central Bank of UAE - November Banking Statistics

CB UAE has released November Banking Indicators - summary statistics.

Two differences from October:
  1. AED 3 billion decline in personal loans. (A 1.4% decrease)
  2. AED 3 billion increase in specific provisions. (A 10.3% increase).
Other metrics, including capital funds, have increased or held steady.  

Capital funds (=capital plus reserves but not including current year profit) increased to AED 217.9 billion from AED 211.7 billion.

Tuesday 15 December 2009

Central Bank of UAE - New Disclosure Page: Data on FI Ownership

CB UAE has added a new disclosure page to its website detailing ownership in:
  1. Banks
  2. Finance companies
  3. Investment firms
  4. Money changers