New guidelines to 'serve as a catalyst in depicting a truly realistic financial position of banks'
The UAE’s central bank is seeking to improve transparency in
the banking industry by requiring lenders to book provisions every three months
instead of waiting until the end of the year to cover bad loans.
The new guidelines, which
classify loans and provisions in line with the Basel Committee on Banking
Supervision standards, will “serve as a catalyst in depicting a truly realistic
financial position of banks and other financial institutions,” a statement on
the central bank’s website said.
“All banks and other
financial institutions are required to make provisions, specific or 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 statement dated November 11 said.
UAE banks have faced a
shortage of money since the onset of the global credit crisis, prompting the
central bank to announce a 50 billion-dirham ($13.6 billion) credit facility
for banks in 2008 and to deposit another 50 billion dirhams in local banks. The
credit crunch caused a wave of defaults that forced U.A.E. banks to increase
provisions for bad loans by 41 percent in the 12 months through August to 37.2
Banks are also required to
make general provisions “for unclassified loans and advances equal to 1.5
percent” of the minimum capital required within banks, the central bank
statement said. Companies or government entities with government-backed loans
will be exempt.
The Basel Committee is the
standard-setting group of central bankers and regulators based in the Swiss
city of that name.