Lenders must not overextend themselves with demand sure to accelerate during the approach to these two key events, says the IIF.
UAE and Qatar banks warned on Expo 2020 and 2022 Fifa World Cup lending
The warning comes as credit growth in both countries picks up at its fastest pace since before the 2009 global financial crisis.
“The financial services have to be careful about who they give credit to and how far they extend credit so when the time comes and projects are completed, when the World Expo is finished, when the World Cup is finished, then banks themselves have taken precautions so they don’t end up with non-performing loans to contractors, to construction companies,” said George Abed, the senior counsellor and director for Africa and the Middle East at the institute, which represents more than 480 financial companies around the world.
Deutsche Bank has estimated that Dubai will require Dh158 billion to upgrade its infrastructure for Expo 2020.
And Deloitte has estimated that Qatar is spending US$200bn to host the 2022 World Cup.
Mr Abed said he expected both events to contribute to domestic economic growth.
He said he expected the bulk of the financing for the events to be done mainly by the public sector. Still, bank lending is expected to pick up as the government and companies borrow to fund expansion in anticipation of the events.
Bank lending in the UAE rose 7.1 per cent in December, the fastest rate in at least four years. In Qatar, domestic loan growth hit 12 per cent last year, with much of the expansion linked to infrastructure projects related to the World Cup.
Banks in the UAE were left nursing battered balance sheets after the property market soured during 2009, leaving individuals and companies unable to repay loans.
Mr Abed said there was a risk of overcapacity after the big events.
“There is a risk if businesses depending on huge infrastructure spending find themselves with less business and [are] therefore less profitable,” he said.
Flexibility in the employment market because of the reliance on imported labour would help to offset any impact from a surge in unemployment caused by a post-event slowdown, he said.
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