United Arab Emirates banking stocks declined on Monday, after the central bank asked lenders to raise to 80 percent their provisions against exposure to two Saudi conglomerates. Newspapers quoted a central bank circular as saying banks must take the provisions against Saad Group and Ahmad Hamad Algosaibi & Bros. by the end of 2010.
The two firms are locked in a complex legal dispute involving up to $22 billion of debt. "The announcement will have a very negative impact on the markets," said Musa Haddad, head of the MENA equity desk at National Bank of Abu Dhabi.
"UAE markets are already consolidating in the last few weeks. The banking sector will be in pressure following this announcement." Emirates NBD dropped 4.8 percent and Dubai Islamic Bank slipped 0.5 percent. Abu Dhabi Commercial Bank fell 1.4 percent. "Higher provisions are already expected on Dubai World. Now there will be further pressure," he said. The impact of the provisions are expected to be seen on the fourth-quarter results. Dubai's index fell 1 percent, touching its lowest level since September 7.
"The good part is that the first quarter of next year should be clean with all the provisions going this quarter," said Haddad. In Abu Dhabi, Aldar Properties declined to a near four-week low with no word on an expected government support package for the indebted developer.
The Abu Dhabi bourse slips 0.4 percent. Other regional markets were mixed, as investors stayed on the sidelines due to lack of catalysts to move the market. "Despite the low volumes, the forecast for the (Gulf) as a whole looks positive especially for foreign investment," said Hesham Tuffaha, head of research at Bakheet Investment Group in Saudi Arabia.
"With the soccer World Cup coming to Qatar, foreign investors will look to invest in the region. Saudi is relatively closed to foreign investors the only window open would be the UAE markets," said Tuffaha. Qatar's index gave up gains from a Sunday's advances, slipping 0.2 percent, as investors booked profits. Industries Qatar dropped 3.2 percent after reaching a closing high of at least two years on the previous day. Kuwaiti telecom firm Zain advanced 1.3 percent. Last week, a Kuwaiti court dismissed a lawsuit from a Zain shareholder unhappy with a $12 billion bid for a stake in the firm, clearing one key hurdle for buyer Etisalat. The index gained 0.2 percent.