x Abu Dhabi, UAEFriday 28 July 2017

UAE banks tipped to ride out euro crisis

The Central Bank dismisses worries that local lenders could be hit by the fallout from any European banking crisis.

Abdul Aziz Al Ghurair, the chief executive of the Dubai bank Mashreq, also said he did not anticipate a major spillover from Europe's crisis at UAE banks. Ryan Carter / The National
Abdul Aziz Al Ghurair, the chief executive of the Dubai bank Mashreq, also said he did not anticipate a major spillover from Europe's crisis at UAE banks. Ryan Carter / The National

The Central Bank has dismissed fears local lenders could suffer aftershocks from any European banking crisis.

The comments yesterday came even as concerns mounted over the health of some European lenders amid expectations of a Greek default.

The UAE's banks are "in a good position" and "should not be negatively impacted by the recent turmoil in international markets", the Central Bank's board of directors said, according to Dow Jones.

Jaap Meijer, the head of banks research at AlembicHC in Dubai, said the current situation was in "no way comparable" to the collapse of Lehman Brothers in 2008, which triggered a banking crisis worldwide, closed credit markets to Gulf borrowers and hit the UAE property market hard.

"The GCC will be, in general, quite resilient," he said. "Loan growth may be less than expected because banks are becoming less willing to extend loans and interbank rates creep up, but the funding markets seem to be behaving well."

The UAE's banks are suitably capitalised, he said, although stress tests showed signs of strained liquidity at a handful of lenders. "They're fairly capitalised, but they're not over-capitalised," he said.

Abdul Aziz Al Ghurair, the chief executive of the Dubai bank Mashreq, also said he did not anticipate a major spillover from Europe's crisis at UAE banks.

"I don't expect any direct impact on the banking system," he said. "The only fear is the stock exchanges of the world [are] collapsing, and [that puts] pressure on stock exchanges everywhere and our stock prices here in the UAE are quite depressed because of what is happening internationally."

While the UAE's banks have stepped back from international bond sales because of the turmoil, they have filled the gap with interbank financing and deposits. Given the current situation, Mr Al Ghurair said Mashreq may issue bonds in the second half of next year but not before.

"We have enough liquidity and our capital adequacy [ratio] is at 22 per cent," he said. "If we do it, we just want to stay in the market."

Stock markets plunged across Europe yesterday after euro-zone leaders delayed to next month a crucial €8 billion (Dh38.99bn) aid payout to Greece and finance ministers mulled plans to have banks shoulder bigger losses to save the country from a sovereign default.

Ben Bernanke, the chairman of the US Federal Reserve, said in congressional testimony yesterday the US central bank could take further steps to combat economic turmoil. He also discussed Operation Twist, the Fed's plan to sell about US$400bn (Dh1.46 trillion) of short-term government debt and use the proceeds to buy longer-dated debt.

Earlier in the day, euro-zone finance ministers meeting in Luxembourg said they wanted to review a debt-swap deal hammered out in July that bought more time for Greece to sort itself out.

European stock markets fell as investors' worries intensified. Germany's DAX index dropped 3.5 per cent in afternoon trading, while France's CAC 40 was down by 3.1 per cent.

afitch@thenational.ae