UAE banks' real estate exposure 'overblown'

FEARS OVERBLOWN: A summit in Dubai was told that a correction in the UAE property market would not pose a 'systemic risk' to banks. (Getty Images)

Fears over UAE banks’ exposure to the real estate sector are overblown, it was claimed at a conference in Dubai.

“We feel that the real estate market, even if it were to correct, does not pose a systemic risk,” Mohieddine Kronfol, managing director of Algebra Capital, said at the Debt Capital Markets Summit on Monday.

“There is a risk that if you have an economic slowdown, some banks won’t be performing as well, so looking forward you will have problems. But short of a Dubai default or a complete crash, most of them will be able to weather the storm.”

Kronfol estimates that UAE banks’ exposure to the property market is around 18 percent.

He added that the banks have access to a 50 billion dirham emergency facility set up by the UAE central bank in September, and that most of them are partly owned by sovereign wealth funds with strong balance sheets.

Among those are Abu Dhabi Commercial Bank, which is 56 percent owned by the Abu Dhabi Investmet Authority (ADIA), the National Bank of Abu Dhabi, where the Abu Dhabi Investment Council has a 73 percent stake, and Emirates NBD, which is 56 percent owned by the Dubai Government.

Dubai’s outstanding debt is manageable, and the rising cost of ensuring the emirate’s debt through credit default swaps (CDS) is due to a “misunderstanding”, Kronfol said.

“The markets right now are essentially pricing in a default,” he said.

“We don’t think Dubai will default, we think that the liquidity position is not as dramatic as the market suggests. We think they have different avenues at their disposal and we do think they will end up getting support from Abu Dhabi, probably in addition to some of the surrounding GCC countries.”

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