Ratings agency Standard & Poor’s believes the impact of ongoing Dubai restructurings on local banks it rates is “manageable”, analysts at the company said .
Banks in the UAE are understood to be exposed to heavily indebted state-linked entities, several of which are in discussions with lenders to restructure loans.
“The impact (of the restructuring) will be higher on non-rated banks. The exposure of rated banks to the recent restructurings is somewhat manageable compared to the non-rated banks,” said Goeksenin Karagoez, credit analyst at S&P, on a conference call.
Dubai Group, the financial services arm of a conglomerate owned by the emirate’s ruler, is restructuring about $10 billion in debts with creditors, $6 billion of which is thought to be owed to banks.
It is the latest in a series of high profile restructurings in the glitzy emirate after the $25 billion restructuring of state-owned Dubai World emerged in 2009.
Dubai has an estimated $31 billion of debt due in 2011-2012, the IMF said in a recent report. “For the banks we rate, we are not concerned about the restructurings. We understand that some of the non-rated banks have significant exposure, and we understand that one of the recent bailout by the government was more or less related to this,” said Emmanuel Volland, credit analyst, on the same call.
The government took over Islamic lender Dubai Bank in May and said it would give it a capital injection. S&P rates Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, Dubai Islamic Bank, and Mashreq in the UAE.
“The direct impact on rated banks will be limited, but it (restructuring) is having an impact on investor confidence, so indirectly having a negative impact,” Volland said. S&P said in a report on Tuesday that recovery among the Gulf banking sector is likely to be slowed by a still sluggish lending environment and difficult funding conditions. But most Gulf banks are expected to be unaffected by the political unrest in the wider region, with the exception of Bahraini bank.
“We believe that the ambitious infrastructure spending budgets in Kuwait, Oman, Qatar, and Saudi Arabia are likely to boost business for banks in these countries. For banks in the UAE and Kuwait, we expect 2011 to be better than 2010 in asset generation. “In Bahrain, where the political turmoil and its impact on the real economy stand to take their toll on GDP growth, we expect retail banks’ growth to lag behind GCC peers,” it said.
