Analysts see need for extra UAE banking aid for recovery
The Peninsula - 05 December, 2009
The United Arab Emirates may have to do more to support its banks and prevent the woes of a leading Dubai-owned conglomerate from causing losses and derailing a tentative economic recovery, according to bankers and analysts.
The decision by Dubai World, a flagship government holding company of developers, ports operators and investment companies, to restructure $ 26bn of its debts has shocked markets and rattled regional and international financial institutions, which had expected government support.
Standard & Poor’s, the rating agency, yesterday downgraded a clutch of leading Dubai banks owing to their exposure to the troubled state-owned conglomerate, and warned further demotions could come soon. Fitch Ratings also put four banks on review for a downgrade yesterday, including HSBC Middle East.
The UAE central bank and finance ministry last year opened a Dh50bn ($ 13.62bn, €9.03bn, £8.19bn) credit facility, saying they would guarantee all deposits and injected a further Dh50bn in local banks, part of a promised Dh70bn support package.
After the restructuring was announced last week the central bank opened up another Dh50bn emergency liquidity facility and pledged to support its banks. Yet analysts and bankers say more may need to be done to shore up the sector, and expect the last Dh20bn capital injection - which was shelved earlier this year on signs of renewed health in the economy - to materialise soon.
“I’m pretty sure that the last tranche will come though now,” a senior international analyst said. “There’s no way to put a positive spin on it. Many local banks will have exposure on many, many levels. For now they look OK, but if there is another leg down, things could look a lot worse.”
While concerns over international banks such as HSBC, Standard Chartered and Royal Bank of Scotland are easing, bankers are worried the restructuring could lead to painful losses at smaller, more heavily exposed local banks. Many are already facing mounting loan provisions after the collapse in the property market.
“We spent the weekend just going over our exposure to the local banks,” said the regional head of a top international bank. “The biggest concern is the banking sector. Everything else comes second.” S&P cut the long-term credit rating on Emirates NBD and Dubai Islamic Bank, two state-controlled lenders, and Mashreqbank, the largest privately owned bank in the UAE, to near non-investment grade.
The Peninsula - 05 December, 2009
The United Arab Emirates may have to do more to support its banks and prevent the woes of a leading Dubai-owned conglomerate from causing losses and derailing a tentative economic recovery, according to bankers and analysts.
The decision by Dubai World, a flagship government holding company of developers, ports operators and investment companies, to restructure $ 26bn of its debts has shocked markets and rattled regional and international financial institutions, which had expected government support.
Standard & Poor’s, the rating agency, yesterday downgraded a clutch of leading Dubai banks owing to their exposure to the troubled state-owned conglomerate, and warned further demotions could come soon. Fitch Ratings also put four banks on review for a downgrade yesterday, including HSBC Middle East.
The UAE central bank and finance ministry last year opened a Dh50bn ($ 13.62bn, €9.03bn, £8.19bn) credit facility, saying they would guarantee all deposits and injected a further Dh50bn in local banks, part of a promised Dh70bn support package.
After the restructuring was announced last week the central bank opened up another Dh50bn emergency liquidity facility and pledged to support its banks. Yet analysts and bankers say more may need to be done to shore up the sector, and expect the last Dh20bn capital injection - which was shelved earlier this year on signs of renewed health in the economy - to materialise soon.
“I’m pretty sure that the last tranche will come though now,” a senior international analyst said. “There’s no way to put a positive spin on it. Many local banks will have exposure on many, many levels. For now they look OK, but if there is another leg down, things could look a lot worse.”
While concerns over international banks such as HSBC, Standard Chartered and Royal Bank of Scotland are easing, bankers are worried the restructuring could lead to painful losses at smaller, more heavily exposed local banks. Many are already facing mounting loan provisions after the collapse in the property market.
“We spent the weekend just going over our exposure to the local banks,” said the regional head of a top international bank. “The biggest concern is the banking sector. Everything else comes second.” S&P cut the long-term credit rating on Emirates NBD and Dubai Islamic Bank, two state-controlled lenders, and Mashreqbank, the largest privately owned bank in the UAE, to near non-investment grade.
