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Sat 13 Mar 2010 07:37 AM

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UK banks take Dubai hit but big loss fear fades

UK's top banks lost about $1.5bn profits, on bad loans in region last year.

UK banks take Dubai hit but big loss fear fades
BIG EXPOSURE: UK banks have a hefty exposure to problems in the UAE. (Getty Images)

Britain's top banks look likely to avoid massive losses on Dubai World's debt pile, but have already seen about 1 billion pounds ($1.5bn) wiped off profits due to problem loans in Dubai and the region last year.

But optimism has grown this week that Dubai World is nearing a deal with creditors of its $26bn debt that will see full repayment or only a small "haircut" on loans, compared to a 40 percent loss rumoured last year.

UK banks have a hefty exposure to problems in the UAE, stemming from Britain's traditional links to the region, the emerging markets focus of two big banks, and lending during the Dubai property boom.

HSBC, Europe's biggest bank, swung to a $3 million loss in the UAE last year after an $861 million profit in 2008.

Standard Chartered's bad loans in the Middle East and other South Asia region was $811 million last year from $185 million in 2008.

Barclays' retail and commercial bad debts in the UAE and India jumped by 255 million pounds last year, while Lloyds' bad debts in the Middle East and Latin America hit 69 million pounds from almost nothing and RBS cited weak real estate and construction in the region.

"This is what happens, impairments in emerging markets fall very low for three, four or five years and then you get a couple of big bangs because you are overexposed. But then it can fall away pretty quickly back to low levels," said Simon Maughan, analyst at MF Global in London.

HSBC's impairment charges for the Middle East surged to $1.3 billion from $279 million, mainly on UAE real estate and construction losses. Credit cards and personal loans went unpaid and there were "large numbers of expatriate workers departing the region leaving debts unpaid", it said.

It has $13.9 billion of loans to the UAE and said its exposure to and within the region was acceptably spread.

Standard Chartered's UAE loan portfolio was $10 billion, including about $500 million to troubled firms, but it said it did not expect any material losses from the exposure.

HSBC, Standard Chartered, RBS and Lloyds are on a creditors' committee discussing a deal with Dubai World officials. ($1=.6702 pounds) (Reuters)

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