Banks are in for another year of weak profits and high provisions for bad debts - including loans to two struggling Saudi conglomerates - before business picks up again, according to the chief executive of Mashreqbank. "I think we probably still need next year for the banks to make some provisions for accounts," Abdul Aziz al Ghurair, who is also speaker of the Federal National Council, said. "I think 2011 will probably be a good year when banks will be back and kicking."Banks across the region have been grappling with a rise in bad loans since the onset of the financial crisis late last year, with virtually all lenders setting aside profits in the form of provisions to cover the rise. In the first half of this year, publicly listed banks in the region reported over $3 billion in provisions, far outstripping totals for last year. Lenders have also been hit hard by defaults this summer at two Saudi family-owned conglomerates, the Saad Group and Ahmad Hamad Algosaibi and Brothers (AHAB). Those firms, which are estimated to owe tens of billions of dollars to over 100 banks in the GCC and abroad, are locked in a bitter dispute in which AHAB has alleged that Maan al Sanea, the billionaire founder of the Saad Group, defrauded it in an elaborate Ponzi scheme to the tune of $10bn. Mr al Ghurair said banks that lent to the groups had shown patience and a willingness to renegotiate loan terms, but that if solutions could not quickly be found, many lenders would go to court seeking to get their money back. "I expect all banks - all - will go to courts," he said. "All banks will go to courts. Just watch my words. [They will do so] everywhere, because these customers have really borrowed from different parts of the world." Mashreq claims it is owed more than $400 million by AHAB and a Bahraini subsidiary called The International Banking Corporation. It has filed three lawsuits in the US and another suit in the UAE to retrieve its money, joining a wide range of international banks that have sued the groups. "I think banks have shown a lot of flexibility and a lot patience," Mr al Ghurair said. "They have exercised a lot of restraint in moving on the client. But the client's role is to come forward and say, 'Here is my plan'. But when the door is shut, you can't just wait indefinitely. At the end of the day, there is a board of directors and there are shareholders who will ask, 'What have you done to protect our money?' You can't say, 'Sorry, I didn't do anything.'" As Mashreq and other banks pursue their cases against AHAB and the Saad Group in court, Mr al Ghurair said his company was open to an out-of-court settlement, as long as it made sense for the bank. Both groups have held meetings with creditors in an effort to reach such settlements, but a final resolution has yet to be reached. "We'd be more than happy to reach settlements outside of court," Mr al Ghurair said. "Our aim always with any client is to be accomodative. We're willing to listen, we're willing to reschedule. But we need complete transparency from the customer and we would like to see his willingness to pay and keep the dialogue going. That's our approach. Going to court is our last resort." Many banking analysts agree with Mr al Ghurair's assessment that lenders' return to growing profits will not happen until late next year, or even until 2011. While the UAE's economy is expected to notch steady growth next year - GDP forecasts range from 1.6 per cent from the International Monetary Fund to 3.3 per cent from the World Bank - the banking sector's recovery is expected to be more sluggish, given the time it takes for banks to fully write off loans made to companies and individuals who could not afford to pay them back. "I think in 2010 we will still have growth, but it will be muted growth," said Deepak Tolani, a banking analyst at Al Mal Capital in Dubai. Raj Madha, a banking analyst at EFG-Hermes in Dubai, said Mr al Ghurair's prediction of an end to the provisioning cycle in 2011 was not far off from his expectations. "Yes, we have some provisions, and that's okay," Mr al Ghurair said. "I think banks should be rewarded who are brave and stand out and say, 'Okay, I will make provisions, and I will be very transparent with my provisioning.'" @Email:afitch@thenational.a
Institutions across the region have been grappling with a rise in bad loans since the onset of the financial crisis late last year, with virtually all lenders setting aside provisions to cover the losses. In the first half of this year, publicly listed banks in the region reported over US$3 billion (Dh2bn) in provisions, far outstripping totals for last year. Lenders have also been hit hard by defaults this summer at two Saudi family-owned conglomerates, the Saad Group and Ahmad Hamad Algosaibi and Brothers (AHAB). Those firms, which are estimated to owe tens of billions of dollars to over 100 banks in the GCC and abroad, are locked in a bitter dispute in which AHAB has alleged that Maan al Sanea, the billionaire founder of the Saad Group, defrauded it in an elaborate Ponzi scheme to the tune of $10bn.
Mr al Ghurair said banks that lent to the groups had shown patience and a willingness to renegotiate loan terms, but that if solutions could not quickly be found, many lenders would go to court seeking to get their money back. "I expect all banks - all - will go to courts," he said. "All banks will go to courts. Just watch my words. [They will do so] everywhere, because these customers have really borrowed from different parts of the world."
aftich@thenational.ae
