Dubai World plan manageable for UAE banks - Moody's

The impact of conglomerate Dubai World's restructuring plan is expected to be "manageable" for United Arab Emirates banks, Moody's ratings agency said on Thursday.

"The proposed framework for the restructuring of Dubai World Group (DWG) is unlikely to have direct negative rating implications for banks in the United Arab Emirates," the agency said in a statement.

"However ... the sustained adverse economic conditions are continuing to pressure the country's banking system," it added. Two local banks, Emirates NBD (ENBD) and Abu Dhabi Commercial Bank (ADCB), are part of a seven-member committee that has been leading the negotiations between state-owned Dubai World and its nearly 100 creditors.

These seven banks are said to hold a majority of exposure to the indebted investment holding firm.

Dubai's government in March unveiled a $9.5 billion support plan for its flagship conglomerate Dubai World. Most of the major creditors to the group expressed their support for the restructuring plan, though final details are still to be disclosed as negotiations are ongoing.

"Moody's conservatively estimates that no more than $10bn of UAE banks' exposures relates to the DWG (Dubai World Group) proposed restructuring," the statement said, quoting Moody's analyst John Tofarides.

"Using this estimate ... even a 25 percent impairment loss represents three to four months of pre-provision earnings for the rated banks, which can therefore be easily replenished," Tofarides added.

The impact, however, would differ "considerably" from one bank to another, with the most exposed banks seeing a maximum loss of six to eight months of pre-provision profits, he said.

"We also note that this risk comes at a time when profitability is already under pressure as a result of the country's adverse economic conditions," Tofarides said.

Analysts and lenders initially welcomed the restructuring plan because banks were not being asked to take a discount on their loans.

Moody's warned that this year's profitability could slide into negative territory for some banks if asset quality continues to weaken.

The agency rates 13 UAE banks, of which four have been assigned a negative outlook and another four placed on review for possible downgrade.

On Wednesday, Standard and Poor's downgraded ports operator DP World, a unit of Dubai World, and two other Dubai government-related entities (GREs).

"The ratings on DP World Ltd, Dubai Multi Commodities Centre Authority, and Emaar Properties were all lowered by one notch," S&P said in a statement. (Reuters)