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UAE CENTRAL BANK DIRECTS BANKS TO LEND MORE TO SMES

DUBAI The Central Bank of the UAE has issued draft rules aimed at getting banks to lend more to small and medium-sized enterprises (SMEs) after some lenders had cut their exposure to such companies or raised their charges.

Some banks have had to make huge provisions in the past 18 months against bad debt, much of it relating to SMEs, which account for around 60 per cent of UAE’s gross domestic product. To guard against further defaults, some banks raised lending fees to the sector or withdrew from lending to such companies altogether.

In a draft regulation seen by Reuters and circulated to banks in recent weeks via the UAE Banks Federation (UBF), the banking industry group, the regulator said all banks had to have a dedicated unit in place for SME lending, steered by an SME lending strategy and policy.

It added that banks should have set targets and limits for SME lending and would be encouraged to support UAE national entrepreneurs. Banks would have to provide an explanation to the central bank in cases where lending to SMEs falls below their target. Under the proposed new rules banks should not impose ìunreasonable collateral requirements” in return for lending and should provide borrowers with explanations in cases where they refuse to lend to the sector or withdraw credit.

No one at the central bank was immediately available for comment. A sluggish economy combined with low prices for oil and other commodities and a strong dollar pushed up problems for some SMEs, especially traders, prompting some to flee the country and their debts. The dislocation in the lending market has risked undermining a push by the government to support SMEs and raise their contribution to GDP to 70 per cent by 2021. In return for supporting such companies, the proposed regulations would allow banks to lower the amount of risk-weighted assets they hold, a move that could free up capital. The central bank will consult with the banks via the UBF on the draft rules before a final version is enacted, said a source familiar with the matter.

LOAN GROWTH TO FALL IN 2017

Dubai: Asset growth of GCC banking sector lost momentum last year and the overall loan growth is expected to decline further in 2017 according to rating agency Standard & Poor’s.

Growth in lending to the private sector halved to 5 per cent on average last year, compared with 10 per cent in 2015.

“In 2017-2018, we expect this situation to continue as the government’s policy response to lower oil prices continues to take the form of spending cuts and the postponement of infrastructure projects. Under our base-case scenario, we expect private sector lending growth to reach 5 per cent to 7 per cent on average for the banking systems of the six GCC countries for 2017-2018,î said Suha Urgan, banking sector analyst at S&P.

With the GCC banks performance strongly correlated to their respective real economies, S&P expects the less-supportive economic environment to drive down asset quality indicators further.

“We foresee further deterioration in 2017-2018 and the downward trend to last for at least two years, barring any unexpected increase in hydrocarbons prices,” said Urgan.

The rating agency expect that contractors, subcontractors, small and mid-size enterprises (SMEs), and highly leveraged retail clients will drive the deterioration of asset quality, as the drop in economic prospects has a negative bearing on project pipelines, government subsidies, salaries, and job markets.

The greater exposure of some banks to the real estate sector, specifically some of the large Islamic banks, is also a factor to watch in the current asset quality cycle, specifically for the Kuwaiti, Omani, and the UAE markets.

Non-performing loans (NPLs) to total loans ratio reached 2.7 per cent on average for S&P rated banks last year, with an average coverage ratio of 142 per cent. “Under our base-case scenario, we think that NPLs could increase to 4 per cent to 5 per cent over the next two years and credit losses could double over the same period,” said Urgan.

Slowing loan growth and deterioration in asset quality is expected to reflect on profitability of GCC banks in 2017. “We foresee an increase in credit losses due to the less-supportive economic environment. Banks with exposure to contractors, subcontractors, SMEs, and some segments of the retail sector will drive the trend. We therefore expect revenue growth to decelerate and banks to focus on improving their cost bases (by closing branches and reducing staff) to mitigate the impact,” said Urgan.

GOLD PRICES TO DECLINE

Dubai: Gold jewellery prices in Dubai fell on Monday as the bullion continued to weaken amid a stronger US dollar. The price of 24-karat gold stood at Dh149 per gram, down by Dh1.25 from its peak price last week, when the yellow metal surged following a small US dollar correction and US President Donald’s Trump’s actions. Gold had been on a positive trajectory since the beginning of the year, nearly recovering half of its losses during the July to December selloff. On February 9, retail prices jumped further to hit a record high of Dh150.25 per gram, up by 7.7 per cent from the beginning of the year.

Trump’s renewed talk of tax cuts, however, later dampened gold’s momentum. On Monday, the bullion fell 0.31 per cent to $1,230.22 an ounce. Trump had announced that he would make an announcement over the next two or three weeks that will be “phenomenal in terms of tax.”

“Gold is reacting to a stronger US dollar and uptake in equities market. Gold continues to be volatile while the US government finalises their economic policies,” Karim Merchant, CEO and managing director of Pure Gold Jewellers, said,

DUBAI TO ISSUE DOLLAR BOND

DUBAI: Dubai is expected to issue a US dollar bond by the end of the first quarter, though it has not yet sent to banks any official requests for proposals to arrange the issue, banking sources familiar with the matter said. Banks that had lead managers’ roles on Dubai’s previous debt issues have pitched for a new mandate, added one of the sources, speaking on condition of anonymity because the matter is private.

The size of the deal is likely to be larger than a benchmark issue, which conventionally means upwards of $500 million (Dh1.83 billion), the same source said. A spokesman for Dubai’s department of finance declined to comment. The government is “vigilant” regarding the possibility of issuing a new bond, said a Dubai-based debt capital markets banker. “They have a relatively well-developed curve, so they shouldn’t have any problem when they want to issue.”

Neighbouring emirate Abu Dhabi, the capital of the United Arab Emirates, met fixed income investors in Asia at the end of January but an international issue may not happen this year, sources told Reuters on Wednesday. Dubai’s most imminent debt maturity is a $600 million sukuk issue maturing in May this year. The lead arrangers on that deal, issued in 2012, were Abu Dhabi Islamic Bank, Barwa Bank, Citi, Dubai Islamic Bank, Emirates NBD, HSBC and Standard Chartered.

Its latest international bond was a $750 million sukuk issue in 2014 that is due in 2029, arranged by Dubai Islamic Bank, Emirates NBD, HSBC, National Bank of Abu Dhabi and Standard Chartered.

 

IRAN NOT HAPPY OVER DELAY IN SIGNING CONTRACT BY FRENCH COMPANY TOTAL

Dubai: Iran’s oil minister has criticised French oil company Total for its decision to delay signing a contract to develop a gas field in southern Iran, saying that the reasons given by Total’s chief executive were “unacceptable” to Tehran.

Total was the first western energy company to sign a major deal with Tehran since the lifting of international sanctions with its South Pars 11 project in the Gulf to develop a part of the world’s largest gas field that Iran shares with Qatar. Total’s chief executive, Patrick Pouyanne, said last week that it aimed to make a final investment decision on the $2 billion (Dh7.34 billion) project by the summer, but the decision hinges on the renewal of US sanctions waivers.

“I don’t know why Total has said so,” Bijan Zanganeh was quoted as saying by Mehr news agency on Wednesday. “It’s been included in the contract that we all follow [the] European Union’s policies. Their comments are unacceptable,” he added. US President Donald Trump has called into doubt the western powers’ deal with Iran over its nuclear technology development programme and, responding to an Iran’s ballistic missile test last month, imposed fresh sanctions on Tehran. The South Pars 11 project aims to produce 1.8 billion cubic feet a day of gas, equivalent to 370,000 barrels of oil. The produced gas will be fed into Iran’s gas network.

SAUDI ARABIA CUTS OIL OUTPUT

Saudi Arabia told Opec that it cut oil production by the most in more than eight years, going beyond its obligations under a deal to balance world markets. The kingdom reported that it reduced output by 717,600 barrels a day last month to 9.748 million a day, according to a monthly report from the Organisation of Petroleum Exporting Countries. The group’s own analysts, who compile data from external sources, estimated that Saudi Arabia made a smaller 496,000 barrel-a-day cut – in line with last year’s supply agreement.

“Opec has done particularly well, they’ve surprised most analysts,” Spencer Welch, director of oil markets and downstream at IHS Markit, said in a Bloomberg radio interview before the report was published. “Saudi Arabia has made a particular effort to boost compliance.”

Opec and Russia are leading a push by global producers to end a three-year oil surplus that sent prices crashing and battered their economies. While prices initially rallied 20 per cent in the weeks after Opec’s November 30 agreement, the gains have since faltered on concern that rebounding US output will fill the gap left by Opec’s cuts.

Saudi Arabia’s data indicate it’s pumping about 310,000 barrels a day below its specified target. Saudi Arabian Energy Minister Khalid Al Falih had said on December 10 that the kingdom was willing to cut even more than was required to demonstrate its commitment to the accord. In the same monthly report, Iraq, Venezuela and Iran told the organisation they pumped more than allowed by the accord.

IRAN TO WELCOME CHINESE TRADE DELEGATION

TEHRAN – A ten-member Chinese trade delegation is due to visit Tehran next week to hold talks with Iranian businessmen and entrepreneurs, Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIMA)reported.

The delegation is comprised of Chinese businessmen and investors active in areas including tourism, pharmaceutical, medical and hospital equipment, agriculture, oil and gas, petrochemicals as well as renewable energies. A B2B meeting between Iranian and Chinese businessmen is arranged to be held in the building of TCCIMA on February 19.

IRAN DELEGATION TO VISIT GULFOOD 2017

TEHRAN – An Iranian business delegation is going to visit the Gulfood 2017 food exhibition which is due to be held in Dubai from February 26 to March 2, the portal of Trade Promotion Organization (TPO) of Iran reported.

Alongside visiting the exhibition, the delegation is scheduled to hold talks with foreign companies exhibiting in the event to discuss business opportunities.

It is estimated that 5,000 companies from 180 countries will be participating in this year’s event.

Gulfood is the largest annual food event in Asia which showcases the latest products, services and machinery in food industry every year.

IRAN, JAPAN COOPERATION IN BANKING SUPERVISION

Japan’s Financial Services Agency (FSA) is looking to work closer on banking supervision with the Central Bank of the Islamic Republic of Iran (CBI).

The pair have exchanged letters on co-operation and the plan is to examine the performance of their respective duties for the “safe and sound functioning” of banking organizations in their countries. The contents of the letters include providing relevant information to their counterpart regarding supervisory concerns; they will notify each other of plans to visit a cross-border establishment in each other’s jurisdiction and following the visit, an exchange of views may take place between both authorities; and confidentiality of information will be exchanged. As Banking Technology reported last year, economic sanctions on Iran were lifted and its Central Bank and 15 other banks got access to Swift’s payment system after a four-year break. Also, following this relaxation, companies such as Temenos started looking at the region once more for core and digital banking software deals.

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