Central Bank guidelines for commercial lending chiefs

Banks have come under increasing scrutiny during the financial crisis, with investors calling for more transparency and greater disclosure.

The Central Bank has issued draft corporate governance guidelines to all commercial bank directors in the country in a bid to restore confidence in the sector. "Commercial banks are leading contributors to a successful UAE economy and are expected to show the way on high management standards and corporate governance," Sultan al Suwaidi, the Central Bank Governor wrote in the report released yesterday.

Banks in the UAE have come under increasing scrutiny during the financial crisis, with investors calling for more transparency and greater disclosure. Banking regulators worldwide have moved to improve regulation of the sector and ensure banks are adequately capitalised. Barack Obama, the US president, has announced plans to overhaul the US financial regulatory system this week as the European Central Bank warned that banks in the euro zone could lose a further US$283 billion (Dh1.03 trillion) by the end of next year.

"If a bank fails, it affects the whole economy so [bank] directors are the guardians of financial stability," Mr al Suwaidi said. The new guidelines, the first for local lenders in seven years, call for action to improve disclosure and manage conflicts of interest. They also recommend new committees to monitor executive pay and bonuses, audits and risks to the system. "Such improvements will be value-adding and will reinforce the international competitiveness of UAE banks," Mr al Suwaidi said.

Analysts welcomed the guidelines in a week where the Dubai market regulator was forced to intervene in a long-running feud over a $1.5bn convertible bond issued by Shuaa Capital to Dubai Banking Group in 2007. Investors around the region have also called for greater transparency among banks that have had loan exposure to the troubled Al Gosaibi and Saad groups, after their accounts were frozen by the Saudi central bank last month. Central bank chiefs in the UAE and Oman expressed their concern about the issue this week.

"Some countries in the region have been criticised for their lack of corporate governance and transparency," said Ali Khan, a director of Arqaam Capital in Dubai. "The Central Bank's proactive approach helps in differentiating the UAE from these countries." International investors and depositors seeking to invest in the region demand strong governance before entrusting their money to a bank, Mr al Suwaidi said.

The new guidelines are based on international regulations, but the Central Bank emphasised they "are firmly rooted in and tailored to the national environment". "Central Bank supervisors will help you [the directors] and they will be monitoring your progress towards full compliance as part of their risk-based supervision," Mr al Suwaidi said. [e-mail]