Local and international banks in Dubai will be able to finance the emirate’s ambitious real estate and hospitality projects despite concerns that lenders may be hesitant to fund them.
Dubai has announced a flurry of projects reminiscent of the heady days of the mid-2000s in recent months but Boston Consulting Group (BCG) said banks are unlikely to hold back funds through fear of a repeat of the emirate's property collapse in 2008-2009, when prices plunged by up to 60 percent.
New projects announced for Dubai include Mohammed bin Rashid City, which will include more than 100 hotels, a theme park and the world's largest shopping mall, as well as a new manmade island whose cost is valued at US$1.6bn. The announcements come amid double digit increases in passenger traffic through the emirate's airport to more than 58m, while consultancy STR Global estimates that 19,000 new hotel rooms will be added in the next few years.
“I think there should be enough liquidity available for financing this,” said Reinhold Leichtfuss, senior partner and managing director at BCG.
“If you believe in the development of Dubai, which I personally do, in the medium term and also in the long term, imagine what can happen here if the level of stability in the entire MENA region increases so the region can see a long term uplift.”
“Internationally, we observe that... a lot of investors, especially pension funds and insurance companies, are eager to invest in infrastructure loans,” he added.
According to Standard Chartered, Dubai has US$48bn in loans and bonds maturing between 2014 and 2016, much of it related to borrowing by government-owned entities during the boom days, although some of this debt may be restructured.
In addition, ratings agency Moody's Investor Service in December downgraded the ratings of three Dubai banks including Emirates NBD, the emirate's largest lender, citing concerns over problem loans.
Lenders in the Middle East reported a 6.9 percent increase in average revenues and an 8.1 percent rise in average profits in 2012, outpacing growth in international markets, BCG said on Wednesday.
Lenders in Qatar saw the biggest growth in revenues at 12 percent while banks in the rest of the Gulf reported single growth digit rates. Banks in the UAE, Kuwait and Bahrain achieved growth revenue of five percent or below, it added.
“Overall we saw quite a good and healthy development of the entire banking sector. Middle East banks have been developing quite nicely despite all of the challenges while the international are more or less stagnating in their overall revenue level or compared to 2011, even losing slightly,” said Leichtfuss.
Retail banking revenues, which have remained largely flat during the last few years, increased 4 percent last year due to increases in the UAE, Saudi Arabia and Kuwait, according to the index. Retail profits rose eight percent compared although profit level remained slightly below 2005 and 2006 levels.
Corporate lenders saw less growth at three percent with lenders in the UAE and Kuwait experiencing a decline in revenues compared to a six percent growth or more in other Gulf states.
Gulf lenders should not hold back on essential expansion and investment in IT and operations platforms, said BCG. “Other banks are in the process of identifying new growth areas in order to avoid a decline in revenues and there are a number of banks which are focusing on their IT and operations platforms in order to prevent costs from outgrowing revenues continuously,” noted the report.