UAE property firms call for agency to buy up bad loans

Gov't agency needed to buy up distressed loans, easing liquidity - conference.
UAE property firms call for agency to buy up bad loans
By Joanna Hartley
Wed 04 Mar 2009 07:30 AM

The UAE government has been urged by property companies to set up an agency to buy up defaulting loans from banks in a bid to boost lending, it was reported on Wednesday.

Delegates attending an economic conference in Abu Dhabi said the country's economic recovery was faltering because banks were plagued by non-performing loans (NPLs) that were stopping them from lending, according to UAE daily The National.    

Setting up an agency, dubbed a “bad bank”, to buy up these distressed loans would alleviate the stranglehold on credit that was contributing to the slowdown in the real estate sector, they said.

“We need to remove NPLs from the banks, so they can do their work,” said Gurjit Singh, the chief property development officer at Sorouh at the third annual Abu Dhabi Economic Forum.

Hani Shamma, the chief executive of Bloom, an Abu Dhabi property developer, agreed improved liquidity needed to be addressed to aid recovery.

A special-purpose government vehicle that would buy up existing bank loans and bundle them into securities would help, he added.

“There are pockets of liquidity, but they’re not necessarily going through the banking system. You need a government agency that does this form of securitization,” he  said.

The idea had merit, according to analysts.

“It seems like a logical thing to do. Liquidity needs to be redirected to the market,” said Fahd Iqbal, vice president of equity research at EFG-Hermes in Dubai.

The sentiment came on the same day as Standard Chartered bank urged the UAE government to take more measures to improve liquidity in the banking sector.

“More money should be poured into banks,” agreed Abdullah el Kuwaiz, the former assistant secretary general for economic affairs at the Co-operation Council for the Arab States of the Gulf in Riyadh, and delegate at the conference.

Last week the Dubai government launched a $20bn bond to boost the ailing economy, of which $10bn was bought up by the UAE Central Bank.

The UAE government has taken steps to relieve the funding shortage by pumping AED120bn ($32.67bn) of liquidity into the banking system through loans and deposits.

Abu Dhabi has also injected AED16bn of new equity into five of its local banks to shore up their capital base.

However, Dubai’s banks have not had the same. 

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