CB to 'name and shame' if banks repeat mistake

ABU DHABI – The Central Bank of UAE is ready to reveal the names of banks, which violated its regulations on leverage financing of investors in initial public offerings (IPOs), if they repeated the mistake again, sources said yesterday.

By Hakam Kherallah

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Published: Tue 24 May 2005, 10:55 AM

Last updated: Thu 2 Apr 2015, 5:11 PM

The four banks which went against the Central Bank regulations by over-financing investors could lose a lot by having their names made public. Industry sources said some banks other than those penalised were “uncomfortable” with the Central Bank's decision of not revealing the names of the four banks, saying ‘moral penalties’ are also needed in such cases.

The Central Bank has placed full responsibility on the chief executive officers of violating banks. It warned them against repeating the violation. “By declining to identify the banks it put all banks in an unfavourable situation and left a negative impact on the stock market,” said Ziad Al Dabbas, manager, domestic capital markets, National Bank of Abu Dhabi (NBAD).

The decision to deprive four violating banks of interest generated on the exceeding amounts by deducting such amounts from the banks' accounts maintained with the Central Bank, came as a surprise to many in the banking sector, said the Abu Dhabi-based senior banker.

The Central Bank said the unnamed banks had made loans exceeding their capital, reserves and deposits by Dh228.84 billion.

According to Dabbas the Central Bank is serious in its latest move. However, there have been rumours circulating in the market that the Central Bank could be lenient with the four banks. The market is rife with speculations that Central Bank was holding talks with the violating banks to waive, partially or otherwise, the huge penalties worth over Dh1.5 billion. The fines are expected to create severe problems for these banks. In addition to adversely affecting their second quarter earnings, their share prices could also come under pressure.

Dabbas termed the Central Bank action as 'courageous' and said, over-lending had been a major problem and the banks who have been religiously abiding by the rules of the game were satisfied with the policies they had been following.

He said that massive oversubscriptions of IPOs had hindered the growth of the stock market, where small investors felt left out, with the big investors being the only gainers. Now, banks would be more careful in their lendings, creating a room for small investors who have now better chances of getting their due share from the IPO bonanza which has just started.

The Central Bank has been gradual in its approach with violating banks, said a banking industry source. It first issued warnings to banks against the violation, followed by further memorandums that it would take practical steps to stop the malpractice.

Bankers said that national banks have a responsibility towards protecting the national economy and avoiding practices that would reflect negatively on the performance of the market.

There was a slight decline in bank share prices after the decision, as investors were afraid that banks’ profitability could be reduced by the deduction of interest amounts. However, the decline was not sharp enough to cause concerns or to associate it with the Central Bank’s decision.

Dabbas said some investors anticipate a decline in IPO subscriptions which opened this week including Sorouh Real Estate Company which has a Dh1.375 billion IPO offering. However, many others said they expected Sorouh subscriptions to exceed Aabar issue.

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