UAE Bad Loan Provisions Drop For First Time Since Crisis - Gulf Business
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UAE Bad Loan Provisions Drop For First Time Since Crisis

UAE Bad Loan Provisions Drop For First Time Since Crisis

Provisions set aside for specific NPLs fell slightly to Dhs65.3 billion at the end of October from Dhs65.4 billion in September.


Outstanding provisions for bad loans set aside by banks in the United Arab Emirates fell in October for the first time since the global financial crisis began building in 2008, central bank data showed on Wednesday.

The small drop does not indicate an end to the corporate debt problems that have weighed on UAE banks’ earnings over the past several years. But it does suggest the banks are over the worst of those problems, helped by solid economic growth and a fledgling recovery of Dubai’s real estate market.

Provisions set aside for specific non-performing loans edged down to Dhs65.3 billion ($17.8 billion) at the end of October from Dhs65.4 billion in September, the data showed.

The official WAM news agency said it was the first time since 2008 that provisions had dropped. In October 2011 they stood at Dhs51.9 billion and at the end of 2008 they amounted to Dhs19.7 billion, according to the central bank.

General provisions earmarked for other purposes by the 23 UAE-based banks and 28 units of foreign banks also fell slightly in October to Dhs17.4 billion from Dhs17.6 billion in September; they totalled Dhs15.4 billion in October 2011.

Banks in the UAE were hit first by the global financial crisis, then by the Dubai corporate debt disaster of 2009-2010, when the emirate’s real estate market crashed and conglomerate Dubai World asked to restructure $25 billion of debt.

The debt problems have not yet been fully worked through. For example another investment conglomerate, Dubai Group, is still struggling to restructure $10 billion of debt, and it is not clear whether banks may have to take further provisions against that debt.

Early this month, credit rating agency Moody’s Investors Service downgraded ratings of three Dubai banks including the emirate’s biggest, Emirates NBD. It cited large amounts of problem loans and said the banks had low levels of balance sheet coverage for loan losses and would need additional provisioning.

But a recovery in Dubai’s real estate market has greatly improved the bond market’s confidence in the financial strength of UAE banks and many of their big customers, and their bond yields have plunged this year.

Moody’s predicted last month that the ratio of problem loans to gross loans in the UAE banking sector would be between 10 and 12 per cent for 2012 and drop marginally in 2013.

Banks in the UAE have built up strong capital buffers against losses; they had core capital worth 17.2 per cent of risk-weighted assets in September, a much higher level than banks in many Western countries, central bank data showed.

However, the aftermath of the debt crisis has slowed growth in their lending, which rose just 2.8 per cent from a year earlier to Dhs1.10 trillion in October.

Total deposits, boosted by the real estate recovery and Dubai’s ability to attract foreign funds as a safe haven in an unstable region, jumped 9.4 per cent to Dhs1.16 trillion.


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