Regulator asks financial institutions to announce only approved dividends to markets and shareholders
The UAE Central Bank has informed banks they cannot announce proposed dividends directly to the stock markets and the shareholders before taking its approval.
The regulator has not issued a formal circular on the subject but it has verbally communicated to banks, according to two bankers and a market source aware of the matter. It is a verbal order but it is there and I dont think any bank would breach it, said one of the bankers who asked not to be named. Dividend announcements are restricted and they will only be announced when the central bank clears them.
A central bank spokesman referred MEED queries to assistant governor for banking supervision Saeed Abdulla al-Hamiz, who did not respond to phone calls and an emailed request for comments.
Financial results and distribution of dividends by the banks require Central Banks approval in the UAE. However, financial institutions traditionally informed the markets and the shareholders about the dividends proposed by their boards, saying the intended payment was subject to the final approval by the Central Bank. These gave the markets an indication about the possible payout and the shareholders expected the proposed dividend to be paid without any changes.
The central bank in the past had allowed the practice to continue and did not make major adjustments to proposed dividends, according to the second banker who requested anonymity. The boards usually took into account what they needed to retain and what they should distribute in dividends, depending on the future requirements before proposing and announcing dividends, but this time the central bank wants it changed, he added.
This way the central bank has a bit more leeway and if it thought a certain bank should retain more of its profit for whatever reason, they can direct them to reduce the proposed dividend, the banker explained.
The central bank is ramping up pressure on the banks, asking lenders to maintain permissible limits in various ratios such as eligible liquid asset ratio, the advances to stable resources ratio and loan to deposit ratio some of the indicators of a banks financial health.
Liquidity conditions are getting tighter in the UAE. The price of crude the sale of which is the major source of income for the oil-exporting UAE, especially, Abu Dhabi have dropped to a 11-year low in recent weeks. Proceeds from oil have been the most stable deposit base for the banks but it is quickly depleting as the government has been withdrawing funds in order to meet the shortfalls.
National Bank of Abu Dhabi (NBAD), the largest bank in the UAE by assets, was among the worst hit. The government deposits at the lender dropped by $13bn. NBADs CEO Alex Thursby in October said the UAE banking system as a whole has lost about $15bn in government deposits from September 2014 to September 2015. Outflow of government funds in the last quarter of 2015 is not known.
The overall deposit growth in the UAE has also slowed down markedly in the past 12 months to just 2 per cent. Private sector deposits grew by 5.4 per cent while the government sector experienced a negative growth rate of 6.3 per cent year-to-date in November, according to Monthly Outlook published on the central banks website in December.
Loans, on the other hand, have risen by 8.1 per cent in the past 12 months by the end of November. The fastest growth was seen in government related loans, which rose 10 per cent year-to-date. However, this sector represents just 11 per cent of the total loans outstanding. The private sector accounted for almost 70 of the total loan volume, which grew by 8.3 per cent, according to the Central Bank.