ABU DHABI // Regional stock markets are reeling as the global credit crunch pins the once-booming Gulf between tumbling oil prices and evaporating credit. Oil prices fell yesterday below $37 a barrel, while shrinking liquidity around the world raises concerns that local property markets will join a worldwide downturn in real estate, draining profits and jobs from developers, builders and the banks that finance them.
Stocks in Dubai led declines yesterday, with the benchmark index falling about 5 per cent to its lowest since September, 2004. Stocks in Dubai have lost nearly 11 per cent so far this week. But Dubai's declines were less dramatic than those in Oman, where the benchmark stock index dropped 6.5 per cent, capping a 12 per cent slide since Sunday. "I think we will see more consolidation in the corporate world, mainly in the financial and real estate sector," said Nasser bin Hassan al Shaikh, the director general of the Dubai Department of Finance, in a meeting of the Abu Dhabi Chamber of Commerce and Industry yesterday.
Standard & Poor's (S&P) joined fellow ratings agencies Fitch and Moody's Investors Service in expressing concern about the creditworthiness of some UAE banks. S&P cut its ratings on debt owed by the Dubai Islamic Bank and lowered its outlook for ratings on the Sharjah Islamic Bank, as well as the Emirates Bank International and the National Bank of Dubai, which still have separate debt despite having merged into Emirates NBD.
Shares in the Dubai Islamic Bank dropped to a five-year low. S&P reaffirmed its rating, however, on the Mashreqbank, one of the UAE's few private banks. The agency said the revisions reflected the impact of a dimming global economic outlook and more difficult financing. "Plunging oil prices, an economic slowdown, the falling stock market and pressure on real estate prices are raising major hurdles for Dubai-based banks," said Emmanuel Volland, an analyst at S&P.
Demand for property in Dubai was slowing, S&P said in its announcement, raising the possibility of a sharp drop in prices. With property accounting for almost 50 per cent of the emirate's economy, it said, the impact could be significant. The Central Bank moved yesterday to alleviate the liquidity shortage still afflicting local banks, announcing a dirham-US dollar swap facility that bankers say will enable it to push down the cost of funds for banks and arrest a rapid decline in the amount of credit available to the economy.
Under the terms of the new facility, the Central Bank will buy US dollars for dirhams, but sell US dollars for dirhams to be paid at a later date, effectively lending dirhams out at a rate of its choosing. "These facilities shall be provided to all banks operating in the UAE, regardless of whether or not they have a shortfall in their dirham net positions," the Central Bank said after a board meeting.
S&P warned that, after a year in which credit growth exceeded 35 per cent a year, UAE banks had extended more loans than deposits and were therefore forced to find cash in the wholesale market, where the cost of funding was rising. Investors were also not encouraged by news that Emaar, the UAE's largest publicly traded property developer, had ended a share buyback by purchasing only 200,000 shares, equivalent to only 0.003 per cent of its outstanding stock. The company had been cleared by regulators to buy up to 10 per cent of its shares. Emaar's stock fell by more than 6.6 per cent to 2.25 dirhams, its lowest price in more than four years.
Emaar's stock has fallen 85 per cent so far this year. Tougher conditions for banks and falling prices for oil are intertwined, according to experts. Jassim al Mannai, the director general and chairman of the Arab Monetary Fund, warned the Abu Dhabi Chamber of Commerce and Industry yesterday that if oil prices remained low through next year, regional property developers and construction companies could suffer along with overall economic activity.