The United Arab Emirates' top regulator on Thursday issued a draft of new corporate governance guidelines for its banking sector, the first update in seven years in a region that has been criticized as lacking transparency. The Central Bank's guidelines are the latest efforts by authorities in the Gulf region to restore confidence in local banks, caught in a deep downturn as a result of the global economic and credit crisis. Last year Dubai, one of seven emirates in the UAE, launched an anti-corruption drive, resulting in several high-profile arrests. “Commercial banks are leading contributors to a successful UAE economy and are expected to show the way on high management standards and corporate governance,” Central Bank Governor Sultan Bin Nasser Al-Suweidi wrote in a foreword to the guidelines. “If a bank fails it affects the whole economy so (banking) directors are the guardians of financial stability,” he added. The governor urged banks to improve disclosure standards, increase transparency and to put risk committees in place. “Such improvements will be value-adding and will reinforce the international competitiveness of UAE banks,” he said. The corporate governance guidelines are based on international regulations, but the central bank emphasized they “are firmly rooted in and tailored to the national environment.” Policymakers worldwide are seeking to reform the regulatory framework in response to the credit crisis. US President Barack Obama announced plans on Wednesday to overhaul the US financial regulatory system. The Oman and UAE central bank chiefs expressed concern this week about commercial banks' exposure to two troubled Saudi conglomerates. The UAE has moved to limit public debt and state-owned entities' exposure to debt markets after the credit squeeze brought on by the global financial crisis has left several highly leveraged Dubai-owned companies struggling to meet obligations. The Federal National Council (FNC) on Wednesday passed a public debt draft law limiting the federal government to borrowing up to 45 per cent of the UAE GDP, or 300 billion dirhams ($81.73 billion), whichever is smaller, state news agency WAM reported. The law, which still has to be approved by the Supreme Council, also limits how much individual emirates can borrow to up to 15 percent of their own GDP. The law is aimed at preventing the UAE or its emirates, of which there are seven, from borrowing excessively, and bans government entities from borrowing money without federal government approval. The move could curtail Dubai's expansionist policy, which has seen its borrowing rise to over 100 percent of GDP. The total debts of Dubai and its related entities is estimated at around $70 billion compared to GDP of around $55 billion. “No government entity is allowed to issue loan bonds or sukuk without approval of the Federal Cabinet,” WAM cited from the law. “The application in this respect should state the amount of the issue of loan bonds or sukuk, the purpose of the issue, financial resources or investment earmarked for repaying the incurring debt.” Dubai and its state-owned entities found themselves in trouble at the end of last year as the freeze in international money markets raised questions over whether Dubai would be able to roll its debt. A number of credit ratings agencies have downgraded Dubai-linked firms in recent months. However, earlier this year several state-owned companies, including Dubai Electricity and Water Authority (DEWA), Dubai's Department of Civil Aviation and exchange operator Borse Dubai were able to refinance their debt. Dubai sold $10 billion of bonds to the UAE Central Bank in February and is planning to raise another $10 billion to support state-linked companies. The public debt law comes as both Dubai and Abu Dhabi have tapped the debt market and the UAE has announced plans to issue its first sovereign bond. Abu Dhabi raised $3 billion in late March as part of a $10 billion bond program planned over the next two years for general government spending. The bonds are aimed at developing the UAE's capital market at a time of extreme oil price volatility, which has seen crude slump from $150 in July last year to $30 in December before bouncing back to around $70. Meanwhile, UAE-based Noor Islamic Bank has formed an alliance with UAE Exchange to offer an additional card payment option for its card customers in the UAE. Customers of Noor Islamic Bank cards will now be able to make their monthly payments at any of the 77 branches of UAE Exchange located across the country. The service comes in addition to the other five payment options that include cash and check deposit machines, standing instructions, phone banking for Noor account holders, direct mail, and the bank's 16 locations in the UAE. Galal Kulaib, CEO of Noor Islamic Bank, said: “In forming an alliance with the UAE Exchange, Noor Islamic Bank has successfully expanded its ambit of services for the comfort of its card customers. The UAE Exchange is renowned for its secure network of strategically located branches, most of which function throughout the week and for extended hours.”
