Rising loan provisions 'natural' - UAE central bank

Cbank governer said he expected bad loans to increase to 6.4% from 4.4% in 2010.
Rising loan provisions 'natural' - UAE central bank
NATURAL RISE: The UAE central bank said that a rise in non performing loans was natural because of the effects of the debt crisis. (Getty Images)
By Stanley Carvalho
Tue 09 Feb 2010 08:15 PM

An expected rise in non performing loans for banks in the UAE is "natural," a central bank official said, adding that lenders in the region may have to book additional writedowns this year.The official's comments come a day after the UAE central bank governor said he expected an increase in bad loans in 2010 to 6.4 percent from 4.4 percent a year ago.

Saeed Abdullah Al Hamiz, senior executive director, banking supervision and examination at the UAE central bank, said: "It is natural, it is not alarming. Because of the crisis there is a further deterioration in real estate and rents."

Loans and advances of the banking sector in the UAE totalled $277.2 billion in 2009, according to Central Bank statistics. With non performing loans (NPLs) at 4.4 percent, banks may have to write off some $11.97 billion.

In the event of NPLs rising to 6.4 percent in 2010 and given the slow credit growth expected this year, the figure could easily be over $17.42 billion.

The Gulf region's banks suffered in 2009 as a regional property boom came to an end and the global downturn forced the lenders to set aside more provisions against bad loans which dampened profits.

Some of the region's largest banks, such as Mashreq and Abu Dhabi Commercial Bank posted fourth quarter losses as a result of a steep increase in loan loss provisions.

Debt troubles at two Saudi family businesses and the restructuring of conglomerate Dubai World sparked further concerns for the region's banking sector.

Giyas Gokkent, chief economist at National Bank of Abu Dhabi, said: "When times are good the ratio of NPL's (non-performing loans) to loans falls and in a period of economic slowdown, loan growth declines and the ratio of NPL's increases."

He added: "When recovery is not possible banks might have to take it off their books." (Reuters)

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