x Abu Dhabi, UAEWednesday 24 January 2018

Banker calls for Dh25bn boost

A top banker calls for up to Dh25bn in further government injections into banks.

A top banker called for up to Dh25 billion in further government injections into banks yesterday, raising fears the financial sector has yet to emerge from the recession. Banks want the cash to revive lending to businesses and consumers after setting aside ever larger amounts of money to cushion against unpaid loans.

Hussain al Qemzi, the chief executive of the Dubai-based Noor Islamic Bank, said the banking system could need as much as Dh25 billion on top of Dh120bn already spent on shoring up bank finances since 2008. "The banking sector in the UAE needs continued capital injection," Mr al Qemzi said. "I can say we need another Dh20bn to Dh25bn." Analysts had hoped for an economic recovery by the middle of this year after growth ground to a halt in 2009. But a rising number of bankruptcies and credit problems at major Gulf businesses such as Dubai World and the Saudi Saad/Al Gosaibi empires have forced banks to constrain lending, putting a brake on growth.

The International Monetary Fund (IMF) last week estimated that growth in the UAE would be near zero this year. The IMF had previously projected a 2.4 per cent expansion this year. Last year, banks set aside an extra Dh13bn to cover bad loans, bringing total provisions to Dh32.6bn, according to the Central Bank. National Bank of Abu Dhabi yesterday became the third large lender to say it set aside more than a billion dirhams last year.

"They're preparing for the worst, which is good," said Janany Vamadeva, an analyst at HC Securities in Dubai. Bad loans rise during recessions as companies grapple with falling revenues and people lose their jobs. Most banks have set aside enough money to cover questionable loans, analysts believe, and few have reported losses in the past year. Abu Dhabi Commercial Bank, which last week reported a Dh1.2 billion fourth-quarter loss, is the only major bank so far to report a major loss.

Analysts say, however, that further strains are likely as defaults on consumer and commercial loans continue to plague banks. A big unknown for banks this year is how they will deal with their exposure to Dubai World, the Government-owned group that is seeking to restructure $22 billion in debt, much of it owed to local lenders. Because Dubai World continues to pay interest on the debt, banks have not classified it as in default. If the restructuring deal involves anything less than full repayment, however, banks will have to write off what they lose, putting further pressure on profits.