Central Bank of the UAECentral Bank of the UAE

Ministry of FinanceMinistry of Finance

Central BankCentral Bank is said to be working on more initiatives to boost the financial health of the banks. But the banks seem to be quite comfortable even otherwise, on the liquidity front. At least, that has been made to believe from the statement made by Central BankCentral Bank governor, Sultan Bin Nasser Al Suwaidi who clearly stated that only 15 per cent of the Dh50-billion facility has been availed by the banks so far [as of mid-October].

Moreover, the banks got their share of deposit when the government distributed Dh25 billion as the first tranche from its Dh70 billion commitment.

Banks' role
But have the banks been able to reciprocate the government gesture by helping instill the much-needed confidence into the market? To say yes could be indeed disputable, according to experts in the industry. But let us just go through the moves the banks have made in the last couple of months when depressing news have been waking up us daily morning and as we counted up to 19 banks that collapsed in the worst financial turmoil that gripped the world since the early 30s.

Loan syndication
In a market where loan syndication has almost died, corporate banking heads are said to be killing time by watching business channels. And the personal loans have been made reachable only to those who don't really need them. There was a recent announcement from HSBCHSBC that the minimum salary requirement for personal loan has been raised to Dh20,000 a month. Interestingly, more banks are now keen to offer salary-not-linked personal loans the interest for which could go up to the 'near-abouts' of 30 per cent a year.

There has been a sort of freeze on the auto loan though not officially conveyed. TBW has come across many who have been denied an auto loan for one reason or the other.

Fortunately some banks have resumed this later at higher rates.

The home mortgage loan rates are not relevant now as mortgage loans have been downsized to 50 per cent of the value (loan to value) of the property unit in some cases.

There was a time when top-up was offered by mortgage financiers over and above the 90 per cent financing already availed by the borrowers. A recent HSBCHSBC report has said that given the heightened risk perception surrounding the real estate sector, banks are likely to lower mortgage loan-to-value (LTV). "Early evidence suggests that this has already begun: for instance HSBCHSBC Home Finance department recently reduced its mortgage LTVs from 85 per cent to 60 per cent on apartments and 70 per cent on villas.

TamweelTamweel and AmlakAmlak reduced their LTVs from 90 per cent to 75 per cent and 60 per cent respectively."

Meanwhile Lloyds TSB GroupLloyds TSB Group Plc has already stopped providing mortgage loans for apartments in the UAE though it continues to offer mortgage to villas at an LTV of 50 per cent. "If the value of property still continues to increase as all property developers including Mohammed Alabbar, chairman of EmaarEmaar Properties, claim, why should the financiers bring down the LTV so drastically, by about 30 to 40 per cent in one go?" asks a mortgage analyst.

EmaarEmaar move
Recently, the property leader, EmaarEmaar with presence in about 20 countries, has come forward with innovative payment plans that would certainly prove to be a boon to genuine home buyers. There were reports that the Dubai government is setting up a panel to monitor the real estate sector. At the same time, Abu Dhabi property development entities such as SorouhSorouh, Tourism Development & Investment Company (TDIC)Tourism Development & Investment Company (TDIC) and Al QudraAl Qudra are seriously thinking of re-prioritising projects, the new strategy being pursued by their Dubai counterparts including EmaarEmaar, NakheelNakheel, and Dubai Properties.

Banks' have a role to play
Banks need to play their proactive and constructive role in this market from the forefront as a gesture of cooperation with the government, which has extended its wholehearted support to them. They should not allow the economy starve for funds and push people to resort to making large spending through credit cards. This is the time for the banks to turn their focus wholly on the domestic economy and bail out developers and other corporate players so that we will not witness more job cuts and retrenchment in the country.

Standard Chartered BankStandard Chartered Bank has been rumoured to have sacked around 80 employees, which could prove to be a beginning to something stark and nightmarish in store. There are reports that many other banks and financial institutions based in the financial hub of DIFCDIFC have been asked to proceed on long paid-vacations.

It is a fact that banks have become extremely cautious about their business. "Things have changed. We can't ignore the international financial crisis and, of course, we have to review our strategy and business plan," Mashreq chief executive Abdul Aziz Al-Ghurair was reported as saying during an interview given to an agency.

By CL Jose

© The Business Weekly 2008

 

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