Monday, December 27, 2010

UAE Central Bank Orders Hike Saad and Gosaibi Provisions

The Central Bank of the United Arab Emirates has required UAE lenders with exposure to feuding Al Saad Group and Ahmad Hamad al Gosaibi & Brothers to increase their loan loss provisions from 50 to 80 percent. The requirement issued in a circular to all UAE lenders is designed to protect UAE financial institutions from a worst case fallout of the dispute between the two groups.

"All these provisions must be by the end of 2010 and the Central Bank's approval of the banks' annual audited results are conditional on the allocation of those provisions," UAE Central Bank Governor Sultan Nasser al-Suweidi said in the circular.

The circular comes a year after the Central Bank ordered lenders to raise provisions related to Al Saad and Al Ghosaibi to 50 percent. It follows press reports that Saad had offered Kuwaiti lenders a settlement based on payment of $0.20 for each dollar the group owes. The press reports said lenders were negotiating for up to $0.40 on the dollar.

The Central Bank circular asked banks to maintain their 100 percent provisions Saad Group’s Bahrain-based Awal Bank and Al Gosaibi’s The International Banking Corp (TIBC) that were taken over by the Bahraini central bank last year. The difference is provisioning ratios reflects the Central Bank’s assessment of exposure by UAE lenders to those entities and the likelihood that lenders will be able to recover their outstanding loans.

Defaults on loans by Awal Bank TIBC set off a bitter legal battle on three continents between the two groups that are related by Saad Group’s Maan al Sanea’s marriage to a daughter of the Al-Ghosaibi family. Al-Gosaibi has accused Al-Sanea in court filings on three continents of siphoning off $10 billion from his in-laws.

Al Gosaibi is seeking to recover $9.2 billion in lawsuits in the Cayman Islands against al-Sanea and Awal subsidiaries. Court proceedings involving Awal are also ongoing in the United States, Bahrain, Kuwait, Saudi Arabia, Switzerland and Britain.

A Chapter 11 filing by Awal in New York has suggested that the bank may file for liquidation in Bahrain. According to its court filing, Awal has assets valued at most at $100 million and liabilities of more than $1 billion. Under Bahrain law, the administrator has until the summer of 2011 to decide whether to liquidate Awal or return it to its owners.

Assuming that the bankruptcy filing was made with the consent of the Bahrain Central Bank, the filing suggests that Bahrain has decided that Awal is beyond salvation and should be liquidated. In its filing, Awal asserts that after payment of the administrators and other immediate expenses, it will not be able to compensate its unsecured creditors, who number somewhere between 60 and 100 and include: Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, AlGosaibi Money Exchange, Bank of Montreal, Bayerische Hypo-und Vereinsbank, Bayerische Landesbank, Boubyan Bank, Calyon Corporate and Investment Bank, Commercial Bank of Kuwait, Commercial Bank of Qatar, Commerzbank, Commonwealth Bank of Australia, Fortis Bank, Gulf International Bank, HSBC, HSH Nordbank AG, JP Morgan, Kuwait Finance House and The International Banking Corporation.

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