Fifth of UAE bank assets exposed to property - cen bank

Central bank report shows that sector’s total exposure to real estate is US$63.2bn
Fifth of UAE bank assets exposed to property - cen bank
By Daniel Shane
Tue 11 Sep 2012 12:03 PM

More than a fifth of UAE banks’ assets are exposed to the Gulf state’s real estate market, a report published by the country’s Central Bank showed.

According to the UAE Central Bank’s latest Financial Stability report, the sector’s total exposure to the property market amounted to AED232bn (US$63.2bn) at the end of 2011. The Central Bank said this amount represented 21.5 percent of the country’s lenders’ total deposit base and 21.3 percent of their total net loans and advances.

The Central Bank said that the UAE’s banking sector had learned lessons from property crashes such as in the US in the 1980s and Japan and Sweden in 1990s, which had helped it contain its own property crisis, which hit in 2008-2009. This downturn led to housing prices in Dubai falling by up to 60 percent and 50 percent of projects either cancelled or stalled.

“The UAE real estate market witnessed a similar pattern, a boom during the years 2005 to 2007 followed by a bust in 2008,” the report said. It added that the Gulf state’s banks had “avoided a major crisis” following the property crash due to the “high concentration of the development activity in the hands of government-related institutions, which benefited from the government support at a crucial time”.

In the wake of the crisis, major developers including Nakheel were taken over by the government of Dubai. The Central Bank said that this had “limited the systemic spill-over” as a result of the crisis.

Asjad Yahya, vice president of research at Dubai-based investment bank Shuaa Capital however told Arabian Business that “real estate exposure [is] a potential area of concern” and “the overall [banking] sector still appears to be over exposed to [real estate].”

In a report on the UAE’s banking industry published earlier this month, Shuaa Capital said that real estate loans made up close to 22 percent of the aggregate loan book of lenders in the country, only slightly below the average of 23 percent between 2009 and 2011, although exposure varied markedly between lenders.

National Bank of Abu Dhabi and Emirates NBD, two the country's largest lenders, had about 19 percent of their respective loan books exposed to construction and real estate in the first quarter of 2012. Abu Dhabi Commercial Bank, on the other hand, had closer to 30 percent of its loan book exposed to these sectors in the same quarter.

The UAE Central Bank’s Financial Stability report indicated that the country’s overall growth prospects were encouraging: "As regards the prospects for 2012, the UAE economy may achieve better results than the International Monetary Fund estimate of 3.5 percent growth," the report said.

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