x Abu Dhabi, UAETuesday 25 July 2017

Region's banking sector looking up

Standard Chartered says fewer corporate borrowers in the Gulf are falling behind with repayments.

The number of corporate borrowers falling behind with their repayments is beginning to decline, according to one of the country's largest commercial lenders. The news comes after a year that saw banks setting aside increasingly large provisions against bad loans. Corporate lending is a mainstay for the UK-based bank Standard Chartered in the region and the improving health of its lending book is a positive indicator for the Gulf's embattled banking sector, which has been rocked by several large corporate defaults and deteriorating credit conditions.

"The leading indicators for provisions are improving in both lines. The early alerts are down in wholesale lending," said Shayne Nelson, the regional chief executive for the bank's operations in the MENA region. Non-performing consumer loans also continue to slow in a trend beginning in the middle of last year, Mr Nelson said. The news comes as the banking sector shows continued signs of stress. Loans are still exceeding deposits by Dh59.2 billion (US$16.11bn). Last month, UAE bank deposits reached their lowest level since March last year, at Dh958.3bn, Central Bank data shows. Overall loans at Dh1.02 trillion are mostly flat from January and lower than last September.

To rekindle lending, bankers and economists have been calling on the Government to inject fresh liquidity into the system. Banks have been tightening their lending since the crisis hit the region, causing job losses, reducing overall commercial activity and sending up the number of non-performing loans. Interest rates for personal and commercial loans also remain high as banks are spending more on refinancing. Standard Chartered does not break down its bad loans by region, but analysts estimate that about $950 million of its $10bn UAE loan book is not performing. That suggests a 9.5 per cent non-performing loans ratio.

Standard Chartered, which has a strong traditional focus on Asia and emerging markets, suffered heavily from bad loans last year. Non-performing loans in the Middle East and Pakistan grew to $1.12bn, from $411m a year earlier. The bank breaks out only a few figures for the UAE. So far, UAE banks continue to have relatively low non-performing loan ratios at an average of about 4 per cent. The bank said its exposure in the UAE to "high-profile entities which have experienced stress" was $500m. Some of that is believed to be loans to the defaulted Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi and Brothers.

Mr Nelson said the bank had been approached only "minimally" by corporate clients asking to roll over loans rather than pay them back. Many debtors are believed to have secured roll-overs. In its global results this month, the bank singled out "continued challenges in regard to well-publicised problems in Dubai". Last summer, it highlighted loan impairments in the Middle East as one of its three main challenges.

Standard Chartered's UAE loan book remained roughly flat at about $10bn last year. Mr Nelson said the bank had remained committed to "assisting its clients" even during hard times. "As some other banks pulled out it was our strategy to fill that gap." @Email:uharnischfeger@thenational.ae