13 November, 2008

The big gamble

Because of the recent economic developments, we see a lot of questionable practices by banks coming to light. Maybe you came to know, that if you had a bank account in the USA (with an insured bank that is) - the maximum amount you could recover per account, in case that bank busted, is U$ 100000. Check this document.If you deposited more...well, that would be your loss.
In Europe, that amount is even substantially smaller in many countries.
Let's assume for the sake of it, that tomorrow a big bank in the UAE will run into major trouble because of the current credit crunch and maybe, just maybe, because they finance 100's of real estate projects that will most probably default. The bank may get subsidies from the government to save themselves- but what about the money of the account holder?
So obviously, the question is, what's the law on this in the UAE? Anybody knows?


Abu Dhabi/UAE Daily Photo said...

The banks did bottom out here about 15 odd years ago. The government replaced Emirati funds (supposedly), but foreigners were out of luck.

When I arrived 10 years ago US banks were still advising against putting my funds into a local account.

nzm said...

The UAE Government has guaranteed bank deposits in national and major foreign banks operating in the UAE for 3 years.

Australia has also guaranteed for 3 years and New Zealand for 2.

There is no mention of maximum claim amounts.

nzm said...

The first link in my above comment is to an ArabianBusiness.com article. I've read that the ArabianBusiness.com website may have been blocked.

In that case, here's what the Oct 13th 2008 article stated:

The UAE's decision to guarantee bank deposits will last for three years and also cover foreign banks with core operations in the Gulf Arab commercial hub.

The UAE government promised on Sunday to guarantee bank deposits and protect national banks from credit risks, the official WAM news agency said on Monday.

"We are determined to protect our financial and banking system out of keenness to preserve the interests of our country and people," Ruler of Dubai Sheikh Mohammed had previously told a cabinet meeting on Sunday.

www.hallodubai.com said...

I find that statement of the central bank more than vague. There is no definition of what they mean by "bank deposits". It could mean, that it only refers to CASH or only to cash in AED ? or it could mean that it refers to the deposit of the bank itself and not the account holder...?
If you invest in the ABC-fund of the XYZ bank - is that considered a bank deposit?

nzm said...

I would say that it only applies to cash deposits.

If you invest in a bank fund, part of the investment procedure is to take on risk, (as per investing in stock markets), and I can't see that the UAE Government would go as far as to guarantee that. ;-)

Sam Chaudhry said...

Just FYI about the limit on FDIC insured bank deposits here in USA has increased from $100,000 to $250,000. Its a recent development as i got an email from my bank just few weeks ago. I think this provision was part of recent bailout package that Federal Government announced for the financial institutions. Some law makers weren't willing to approve the bailout package unless it included an increase in FDIC insured amount for consumers' deposits in the banks.

Dubai Entrepreneur said...

To be perfectly honest, and with all due respect to the rulers and guys who run the show.. I've seen statements and heard promises before.. to be broken by the same people who make them.

No trust. I just hope we get through it with as few scars as necessary.

www.hallodubai.com said...

well if a statement from the cenral bank is all we have, that's not good enough for me and I bet it isn't either for many others.
In fact, I was at my bank two days ago and in the queue in front of me were a few guys who have withdrawn all of their funds (each of them more than a million aed). So that gave me some food for thought.

nzm said...

hallodubai: This isn't just a UAE-related thing. These days, out of all the world's banks, which ones can you really trust? If they go under, they go under, and there are a lot of them hanging on by their finger nails, receiving government bailouts and trying not to panic their customers into pulling out their money.

Bloomberg in the US has just announced that they're suing to get the Federal Reserve to disclose who are the beneficiaries of a US$2 trillion package, (way in excess of the US$700 billion that was announced), that was paid out to institutions in the last months.

And they bitch about the UAE having a lack of transparency!

A newspaper poll was recently conducted through a paper in my home country, asking what method of saving money would people use, nowadays.

Options given included: Would they invest in gold, put their money in bank term investment schemes or leave it in lower-interest bearing savings accounts? Most responses indicated that they favoured going back to hiding their money under their mattresses!

Arabian Money has been advocating buying gold and silver for quite some time now.

Anonymous said...

Deposits (current, savings, and CDs/FDs) in AED in NATIONAL banks are guaranteed by the central bank for the next 3 years.

If you have 300,000 USD sitting in an HSBC bank account here, they are NOT covered.

Funds (such as our NBAD's MIZAT, UGF, UTF...) are NOT covered in this claim.

Other banks covered are Emirates NBD, ADCB, ADIB, UNB, FGB...)

A note on all this, as some have said, this claim is vague, and (me being a branch manager at NBAD) cant speak for the central bank. I can tell you that both NBAD and ADCB are backed by the largest institutional investor on the planet. These 2 banks simply cannot go down.

Mind you, they almost did in 1991. and ADIA pumped 500,000,000 AED into both a WEEK. ADIA is ready to do that again.

So basically, the UAE has 2 of the safest banks in the world today. and will for the forceable future.

The other banks covered by this vague blanket are not backed by such a power (Though ADIB is owned by ADIA at 40ish %) still, they are not a majority shareholder.

FGB is owned by members of the ruling family, and that can be a good thing or a bad thing as you look at it.

Out of the 2 powerhouses, NBAD and ADCB, NBAD is the one with phenomenal growth even in this time of crisis, while ADCB has lost 280ish MILLION thus far this year, mainly because of their exposure to sub-prime loses in the US.

Their CEO was wanter by interpol, and their board of directors was just dissolved by ADIA and replaced by members of ADIA's higher management pending internal investigations.

Im not saying this because I work for them, but NBAD is probably the safest bank on earth right now, or at least in the middle east.

This all is also evident in CD/FD returns. a bank currently that gives a higher rate is in need of cash.. and I would watch out for that. A bank with a lower rate is more secure, and isnt in such a jam. (An example, HSBC ME currently gives almost 2% more than NBAD)

Good luck. Ive been with NBAD for a while now, and Ive never seen a situation like what we are in now. never.

Hope this helps.

rosh said...

That was quite informative ABIT, thanks. Pardon the HUGE silly Q - where's all the money gone? Sure it exchanged hands, or moved within a bank's balance sheet - not vapourized into space I hope? Perhaps to less liquid pockets?

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