Central Bank chief seeks control of all debts

The bank's Governor calls for greater federal role in managing public and private purse strings to avoid major economic disruptions as Dubai World's debt restructuring chief exits.

The Central Bank Governor yesterday called for more control over public and private purse strings as the man responsible for overseeing the US$24.9 billion (Dh91.45bn) debt restructuring of one of the country's biggest conglomerates stepped down.

Sultan al Suwaidi stressed the need for future debt issues to be managed centrally.

"Ideally, everything should be controlled by the federal debt management office," he said. "We have to manage these initiatives so we will not have to deal with issues in the future."

Future credit expansion is likely to be more closely controlled, he said, with regulations in the pipeline intended to cap the credit portfolio of banks once they reach a certain limit. His comments came on the same day it emerged that Aidan Birkett, the architect of Dubai World's debt restructuring process, would leave his post today after successfully completing his work. Last month, the conglomerate announced it had reached an agreement with almost all of its bank creditors.

Dubai World was one of the biggest borrowers during the economic boom years. Last month, there was a pick-up in capital debt market activity, with bond sales by the Dubai Government and Emaar Properties. In an effort to improve debt oversight, the Government is setting up a federal debt management office to co-ordinate the raising of debt for government-related entities. The UAE is using the slowdown in growth that the global financial crisis has triggered as an opportunity to rebalance its economy and better control its debt profile.

"Our economy has come down to a level that's become very competitive as values have come down," Mr al Suwaidi said during the ACT Middle East Annual Conference in Dubai. "I think we are in a stronger position to face any new financial crisis."

GDP growth was likely to pick up next year to register between 3 and 4 per cent, he said. The IMF last week upgraded its outlook for growth this year to 2.4 per cent.

Such growth is some way short of the peaks the economy reached before the downturn, when a plentiful supply of credit was poured into the property market, sending housing prices and inflation surging. Credit levels reached 44.1 per cent in 2008 before dropping to 4.1 per cent last year, Mr al Suwaidi said. Banks withdrew credit lines after the financial crisis deflated property prices, triggering a rise in non-performing loans.

It was "wrong" for banks to both raise their credit portfolios to the peaks of 2005-2008 and to slow credit growth to the present low levels, he said. "We believe we need to issue new regulations to slow down the credit portfolio growth when it reaches a certain rate so we have space to grow at a higher rate at the same time," he said. Special technical teams were working on new regulations to make it easier for individuals to take out mortgage loans, he said.

As banks prepare to release third-quarter earnings, Mr al Suwaidi said guidance would be issued for lenders to address their exposure to Dubai World, with the framework based on guidelines produced by audit professionals. Several banks are expected to use the third quarter to take write-downs on their exposure to Dubai World. Contrary to some media reports, Mr al Suwaidi said the Central Bank had not taken action to freeze bank accounts in line with UN Security Council resolutions against Iran.

"We give banks free hand to implement Security Council resolutions and to protect themselves," he said.