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CB punishes IPOs credit violations

ABU DHABI — Taking serious notice of the gross violations of its guidelines regarding sanctioning of credit facilities for IPOs, the Central Bank of UAE, yesterday came hard on four national banks, imposing fines amounting to the interest income they earned on the sums exceeding the credit limits allowed.

The board of directors of the Central Bank, which met here in the capital, gave strong warning to the Chief Executive officers (CEOs) of four national banks names of whom were not released held them responsible for flouting its instructions laid out in circular 25/2005 of April 4, which clearly stated that the banks should refrain from granting credit beyond 1:4 ratio. In strong words, the heads of banks were warned not to repeat the violations again, so that ' good governance' could be maintained at banks, which is essential to maintaining the good international reputation, which the country's banking system enjoys from getting harmed.

The BoD, in its last meeting had instructed the Central Bank officials to investigate the matter relating to heavy lending by banks to individuals and companies who wanted to ride the bandwagon of IPOs. The generous lending by banks helped many IPOs to break apart earlier records set for over-subscriptions.

The board was informed that except four banks, all banks strictly abided by the circular. The violating banks had issued credits exceeding their capitals, reserves and customers deposits by an amount as huge as Dh228.840 billion.

Acting from its fear for the common interest and in line with its policy to achieve equal opportunities among banks, so that small investors would not be harmed through increased financing cost from diminishing opportunity to get fair allotment of shares versus what they finance of purchase of shares, most of which is financed by violating banks, through book entries.

The board of the Central Bank decided to deprive such violating banks from the interest income they have earned. As a fine, interest earned on amounts exceeding to the limit fixed by the Central Bank would be deducted from the accounts of four national banks maintained with the Central Bank.

The BoD taking up the matter relating to the employment of UAE nationals at the banking/Financial System decided that investment and finance companies must employ ten per cent UAE nationals.

The meeting of the BoD was chaired by Mohamed Eid Al Merakhi while others who attended it included Juma Al Majid, Sultan bin Nasser Al Suwaidi, the Governor, Jamal Nasser Lootah, ALi Al Sayed Abdulla, Saeed Rashid Al Yateem Al Muhairi, Mohamed Ali Bin Zayed Al Falasi.