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No Economic Growth this Year: Al Suwaidi

Governor Sultan bin Nasser Al Suwaidi said the growth of the country’s gross domestic product — total market value of all the goods and services produced in a year – would slowdown significantly this year, after expanding by 7.4 per cent in 2008, one of the highest growth rates in the world last year.

“If at all there is a growth it will be positive only slightly, and it can even be slightly negative,” he told reporters on the sidelines of a meeting of Arab Central Bank Governors in Abu Dhabi. He said the investment climate in the country has become attractive as the prices of assets have come down drastically. However, a fall in prices of consumer goods and services when compared to last year, also known as deflation, would not have any major impact on the UAE economy, “as our economy is open and globalised”.

Quashing speculations about its foreign exchange policy and currency regime, the governor said the Central Bank would continue to retain its reserve in dollars, and had no plans to drop the dollar peg in near future.

Banks’ Profits to be Hit

The Central Bank governor said that 13 UAE banks have exposure to the troubled Saad Group of Saudi Arabia and its affiliates. However, Al Suwaidi declined to give either the names of the banks that had been impacted or the total amount of exposure.

“Each bank knows how much is their exposure and the Central Bank is also aware of it, and we are monitoring the situation,’’ Suwaidi said.

Although several banks including the Abu Dhabi Commercial Bank, and Mashreq, have disclosed their exposures to the Saad Group, it is for the first time the total number of banks that have been affected is being made public.

Al Suwaidi said the banks’ profitability would be hit as they have to make provisions for the losses caused due to their exposure to the Saad Group, whose assets have been frozen by the Saudi Central Bank amid allegations of fraud by another Saudi conglomerate Al Gosaibi group. Some reports have estimated that the two groups owe up to $22 billion to both global and regional banks.

“Each bank has to make their own provisions and we are giving them the necessary guidelines. This provisioning might affect the profit levels of the banks in the UAE in third and fourth quarters,’’ he said.

He said interbank rates in the UAE had come off since the Central Bank last month rejigged the panel of providers for the Emirates interbank offered rate in the hope it would lower rates. The new interbank rate will be published by the Central Bank from October 1.

“There has been a decent lowering of the EIBOR rates since the announcement,” Al Suwaidi said.

Early Warning System

Earlier, speaking at the annual conference of the Arab Monetary Fund being attended by the Central Bank chiefs from the Arab countries Al Suwaidi welcomed the proposal to form an “early warning system” for financial institutions in the Arab countries.

Calls for greater coordination and regulation among Middle Eastern countries was the main theme for Monday’s meeting, echoing similar calls from the Group of 20, or G-20, nations meeting last week.

The region’s Central Bankers see coordination as key to monitoring financial firms, reeling from billions of dollars worth of exposure to local family businesses and real estate.

“The global economic crisis proved a need to have a better monitoring and supervision of financial institutions in the Arab world,” Sudan’s Central Bank governor, Sabir Mohamed Hassan said in a speech given at the meeting.

· ramavarman@khaleejtimes.ae

· With inputs from Agencies