UK banks eclipse rivals on UAE loan exposure

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DEEP EXPOSURE: HSBC Holdings, Europe's biggest bank, has the biggest exposure to the UAE. (Getty Images)

British banks have far greater exposure to potential problem debts in the UAE than rivals in France, the United States, Japan or anywhere else, loans data show, as worries mount about the region.

Bank shares and financial markets have been rattled in the last three days by worries about debt problems in Dubai, after the emirate asked creditors at its flagship firms Dubai World and property developer Nakheel to delay repayment on billions of dollars of debt.

A lack of clarity on where exposures lie and how wide the issue will spread has left investors jittery.

UK banks have greater exposure than rivals due to Britain's traditional links to the Middle East, two major emerging markets focused banks and lending during the Dubai property sector boom, analysts said.

UK banks have loans totaling $50 billion into the UAE, out of total loans of $123 billion by international banks, according to statistics from the Bank of International Settlements (BIS).

The BIS data, based on loans to the end of June, showed loans from banks in Britain was far higher than from France ($11.3 billion), Germany ($10.6 billion), the United States ($10.6 billion) and Japan ($9 billion).

HSBC Holdings, Europe's biggest bank, has the biggest exposure to the UAE, according to end-2008 estimates by the Emirates Banks Association.

The London-based bank's loan exposure to UAE was $15.9 billion at the end of June, down from $17.5 billion at the end of 2008, its half-year results showed.

Michael Geoghegan, HSBC chief executive, said on Friday the bank was "completely committed" to the Middle East.

"I am confident that the leadership of Dubai and the UAE will overcome any short-term issues they face, which appear to have been somewhat sensationalized, and continue to lay the foundations for sustainable growth," he said in comments provided to Reuters.

The bank declined to comment on its potential exposure to problem loans in Dubai.

Goldman Sachs analysts said a "first stab" at HSBC's potential credit losses in the UAE was just over $600 million.

HSBC said its loan exposure at the end of June included $1.7 billion of residential mortgages and $1.8 billion of property related loans. It also had $3.3 billion of personal loans and $9.5 billion of commercials and international trade loans.

The Emirates Banks Association estimated Standard Chartered ranked behind HSBC as the foreign bank with most loans into UAE, with $7.8 billion.

Standard Chartered signaled on Friday its exposure would not be material.

Barclays and Royal Bank of Scotland ranked next for loan exposure to UAE, with loans of $3.6 billion and $2.2 billion, respectively.

By comparison, Citigroup ranked highest among U.S. banks with loans of $1.9 billion into UAE, and BNP Paribas was the highest Continental European bank with loans of $1.7 billion.

Most banks have played down their potential exposure or declined comment, which analysts said is partly because it is unclear how far the problem will knock on.

"The exposures to Dubai World debt are relatively limited, and are less of a concern compared (with) the spillover effects for related entities, corporates in the UAE region and potential refinancing issues," said Kian Abouhossein, analyst at JP Morgan. (Reuters)

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