Union de Banques Arabes & Francaises (UBAF) has announced a FF 742.97 million ($131 million) loss for 1993 and a substantial capital increase. The moves are intended to rid the Paris-based consortium bank of the threat of bad debts and put its balance sheet on a sound footing to make sustained profits in the next few years.

The loss was announced on 9 June, following UBAF's decision to make provisions totalling FF 843.4 million ($149 million). UBAF's shareholders have agreed to cover the cost by providing some FF 501.9 million ($88.5 million) in new money and the rest from statutory reserves. These were already held as cover against country debt with the approval of the French banking authorities.

The provisions were intended as a 'once-and-for-all' effort to put problems associated with its sovereign risk portfolio behind it, UBAF chairman Bernard Jaquet said. The bank's ability to raise its capital in such a difficult environment 'demonstrates UBAF's capacity to continue playing its role as a major co-operation bank', Jaquet said.

Safety margin

UBAF's provisions will now cover 66 per cent of total sovereign risk, from a previous ratio of 55 per cent. 'At constant portfolio volume, the 66 per cent ratio thus reached should hedge the bank, in future, against any new provisioning needs for country risks and hence stabilise its results,' a 9 June statement from UBAF said.

The bank's sovereign risk portfolio exceeds FF 4,000 million ($705 million). The changes raise paid-up capital by FF 100 million ($17.6 million) to FF 1,492 million ($263 million).

Jaquet was upbeat about UBAF's future. Despite reporting the loss, 1993 was 'one of the best years in the last 10', he said. Net banking revenue had slipped by 1.8 per cent to FF 571.1 million ($101 million), he said, but when one-off items were excluded, business had risen by 17 per cent. Assets rose by 6.8 per cent, even when provisions are taken into account. UBAF expects to produce full consolidated accounts by the end of July.

Clean up

Efforts to clean up the balance sheet have already yielded results. UBAF reports that provisions for past due interest, principal, securities and other debt totalled FF 129.5 million ($22.8 million) in 1993, down from FF 234.6 million ($41.4 million) in 1992. Net repayments on past due interest from Egypt and Syria were one reason for this.

Pre-tax profit rose to FF 127.6 million ($22.5 million), from FF 59.7 million ($10.5 million) in 1992, before provisions are taken into account. Jaquet forecast profits of FF 50 million-80 million ($8.8 million-14.1 million) in 1994, but said annual profits of FF 100 million-150 million ($17.6 million-26.5 million) could be expected thereafter.

Differing levels of contribution to the capital increase have significantly altered shareholdings (see table).