Top banker urges Arabs to brace for change

Arab countries should be prepared for radical changes in the world financial system following the global economic distress and the eurozone crisis, the region's top banker has said.

Adnan Yousef, Chairman of the Beirut-based Union of Arab Banks (UAB), said changes should include unification of bank auditing standards and revision of capital and credit risk assessments.

Writing in the UAB's monthly magazine, Yousef said the eurozone crisis has underscored the need to revise what he described as the standards for capital risk assessment at global banks.

"There are two suggested methods to do this. The first is that the operational capital of banks should be taken into consideration. We already notice that some Arab Central Banks have already started implementing such standards," said Yousef, who has just been re-elected chairman of UAB, grouping nearly 470 Arab banks.

"The second method is to take into account the profits of banks when assessing credit concentration. For example, a single loan provided to one client must not exceed a certain percentage of the net profits."

Yousef, CEO of the Bahrain-based Al Baraka Islamic Bank, said measures taken so far by industrial nations in this regard could vary in form or nature but added that they will serve the same purpose which "the markets, investors and financial institutions seek."

"In this respect, we repeat our call to all monetary authorities in the Arab region to actively participate in these dialogues in line with the role played by emerging economies in re-formulating the base of the world economic and financial system," the Bahraini banker said. "Many Arab countries, their banks and other institutions have become quite open to the global markets and they have presence in most parts of the world. They should be prepared and cope with those radical changes, which could be far reaching and affect us all."

Highlighting the eurozone crisis, Yousef said the size of the Greek debt due for payment in the coming weeks stood at only around $8.5 billion, adding that the amount is not big relative to European banks.

"However, Moody's Credit Rating Agency warned of the Greece crisis spreading to banking systems in Portugal, Italy, Spain, Ireland and Britain. It said that despite the fact that the effects of the global crisis on banks in Portugal and Italy were weak, the damage might hit them in case of the crisis spreading outside Greece," he said.

"We see that the risks of such a crisis moving to financial systems of other countries are not only related to the size of these debts, but to their direct and indirect investments in the Greek economy whether through loans or securities invested in that country."

Yousef noted that a big portion of the European banks' capital goes into investments in financial and banking units in Greece.

"This means that they could be directly or indirectly exposed to Greece's debt. This, in turn, increases the impact of default on those banks although the amount of debt seems relatively small. In this regard, we stress the need for finding a new global auditing formula. We already notice that pressure is building from world markets and financial companies to unify international auditing standards so they can operate in a better and clearer environment."

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