UAE Central Bank Asks Lenders About Exposure To Turkey

The United Arab Emirates central bank has asked local commercial banks in the country to provide details of their financial exposure to Turkey by Tuesday, two bankers said on Monday.

The central bank said in a circular its aim was to review the investments, the bankers said, declining to be named because they were not authorised to speak to media. One Dubai banker said it did not signal an attempt to curb the banks’ exposure to Turkey.

A central bank spokesman declined to comment.

Since the start of May, the Turkish lira has fallen nine per cent on investor concerns about anti-government protests and U.S. plans to scale back monetary stimulus.

The UAE’s financial ties to Turkey have expanded in recent years. But UAE banks are very well capitalised by international standards – some have capital adequacy ratios near 20 per cent of risk-weighted assets – so any trouble there appears unlikely to pose a major threat to them.

Gulf banks are looking to diversify out of the region’s oil-focused economy and are hamstrung by a lack of potential acquisitions at home.

Commercial Bank of Qatar (CBQ) earlier this year bought a 70.8 per cent stake in Turkish lender Alternatifbank, while Qatar National Bank, the Gulf state’s largest lender, lost its bid for Denizbank last year to Russia’s Sberbank.

QNB’s chief financial officer said in January the bank was still interested in expanding into Turkey through acquisitions, though it had no firm targets.

UAE banks have also increased their exposure to Turkish debt, particularly Islamic bonds, or sukuk.

Middle East investors were allocated nearly 60 per cent of Turkey’s $1.5 billion debut sovereign sukuk last year, and several Gulf banks – including the UAE’s Noor Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Al Hilal Bank – have acted as arrangers on deals originating from Turkey this year.

Sales of Turkish sukuk to Gulf investors may increase further as Turkey expands its offerings; Istanbul is working on new regulations to allow use of a wider range of sukuk structures, which could see Islamic bonds used for project finance and infrastructure development.

“We see (the circular) as a normal practice by the central bank to keep an eye on all international country exposure,” the Dubai banker said.

“It does not mean they will come up with a new regulation limiting exposure to Turkey unless the data compiled exceeded the norm.”