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28 March 2024

Banks asked to take provisions for DW debt

Banks which did not take provisions against their DW loans in the third quarter must chop provisions off their balance sheet in the fourth quarter. (FILE)

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By Staff

The Central Bank has asked banks in the UAE to take provisions against their exposure to Dubai World (DW) following the group’s recent debt restructuring agreement with creditors, a newspaper reported on Friday.

Central Bank Governor Sultan bin Nassir al Suwaidi made the request in a circular sent this week to the country’s 23 national banks and 28 foreign units, the Arabic language daily Alkhaleej reported.

“Now that a restructuring agreement has been made by DW, all banks which have provided loans to DW are requested to take the necessary provisions in consultation with their auditors,” the circular said.

“Auditors who are based abroad can be asked by the banks to consult with the Central Bank in this respect and any other related issues.”

In a previous circular, the Central Bank told banks there was no need for such provisions until after the state-owned DW finalises the debt deal with creditors.

According to Alkhaleej, banks which did not take provisions against their DW loans in the third quarter must chop provisions off their balance sheet in the fourth quarter to “offset any gap in the cost of their loans to DW.”

On September 9, DW announced it had reached agreement with its lenders for the restructuring of $24.9 billion debt following marathon negotiations.

According to Moody’s Investor Service, the deal would strengthen the UAE banks’ credit rating and allow them to ease a drive to build loan loss provisions they launched in the wake of the 2008 global fiscal crisis.

“The conclusion of the DW’s restructuring saga is a credit positive development for the UAE banking system and puts an end to the uncertainty that the threat of liquidation had created,” the rating agency said in a recent statement.

“Had an agreement not been achieved, the potential liquidation of Dubai World could have seriously increased the impairment costs that banks would have incurred, throwing confidence in the UAE banking system into havoc.”

UAE banks have already built up massive provisions for non-performing loans because of the crisis and regional debt default problems. Central Bank figures showed the country’s 51 banks have allocated around Dh20 billion for NPL provisions since the end of 2008 to peak at Dh39.6 billion at the end of October.