Abu Dhabi Commercial Bank (ADCB) has disclosed the biggest exposure yet to Dubai World among local lenders as the conglomerate seeks to restructure as much as US$22 billion (Dh80.8bn) of debt.
The emirate's third-largest bank has about Dh9bn in outstanding loans to the company, about half of which are supported by collateral and income streams from infrastructure and other projects, said Alaa Eraiqat, the chief executive.
"If I slice it down, the picture looks much better because of the ring-fenced income and collateral of some of these exposures," he said.
About half of the lending to Dubai World was issued in the form of so-called "club deals", or syndicated loans involving multiple lenders. But the bank has not yet set aside any provisions for Dubai World.
"The accounts are still performing with us and other creditors. They are still paying interest and [other] payments. It is still current everywhere," said Mr Eraiqat.
Dubai World and its creditors are currently locked in talks as they seek to hammer out a formal repayment standstill agreement and a restructuring timetable. Nakheel, the developer of Dubai's Palm Islands, and Istithmar, the investment firm best known for its lavish purchases, are believed to have racked up the largest debt within Dubai World.
ADCB this week reported one of the largest ever quarterly losses by a local bank.
In the October to December period, the bank lost Dh1.2bn after taking Dh2.1bn in provisions, more than half of which went towards its exposure to the Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi and Brothers. About Dh900 million of that lending remains on its books.
Another Dh700m in provisions went towards foreign investments in special investment vehicles and credit default swaps in the US. Most of these have turned sour, and Dh300m of them remain on the bank's books, "which could potentially turn toxic", Mr Eraiqat said. ADCB had the largest exposure to financial derivatives among UAE lenders.
Local banks almost doubled their provisions for bad loans last year. Provisions against lending to the two Saudi groups and bad consumer and commercial loans are likely to be a drag on the fourth-quarter earnings of many banks across the Emirates.
Mr Eraiqat said the make-up of the bank's exposure to Dubai World made him feel "more comfortable".
"The headline number might be a bit misleading, and I don't want anyone to say 'let us assume you take a haircut of 30 per cent, that means you make a Dh3 billion loss'." A "haircut" refers to the margin between the true value of a loan and what a lender receives after a restructuring.
"This is what I tell you makes a big difference [and explains] why we feel comfortable here [with our Dubai World exposure] rather than the lending to Saad and Gosaibi."
Mr Eraiqat said he did not expect the bank's loan book to deteriorate further this year.
By Uta Harnischfeger
© The National 2010
