x Abu Dhabi, UAEFriday 19 January 2018

UAE bad loan provisions drop for first time since crisis

Outstanding provisions for bad loans set aside by UAE fell in October for the first time since the global financial crisis began building in 2008, Central Bank data showed on Wednesday.

Outstanding provisions for bad loans set aside by UAE banks fell in October for the first time since the global financial crisis began building in 2008, UAE 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 property market.

Provisions set aside for specific non-performing loans edged down to Dh65.3 billion at the end of October from Dh65.4bn in September, the data showed.

State news agency WAM said it was the first time since 2008 that provisions had dropped. In October 2011 they stood at Dh51.9bn  and at the end of 2008 they amounted to Dh19.7bn, according to the Central Bank.

General provisions earmarked for other purposes by the 23 UAE banks and 28 units of foreign banks also fell slightly in October to Dh17.4bn from Dh17.6bn in September. They totalled Dh15.4bn 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 property market crashed and conglomerate Dubai World asked to restructure $25bn worth of debt.

The debt problems have not yet been fully worked through. For example another investment conglomerate, Dubai Group, is still struggling to restructure $10bn 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 property 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 Dh1.10 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 Dh1.16tn.


* Reuters