Monday, May 02, 2011

Gulf News

Dubai Leading bankers expect a significant increase in non-performing loans (NPLs) in the UAE this year with an expected increase in corporate restructuring.

Peter Baltussen, chief executive officer of Commercial Bank of Dubai, said: “Since we are still in the process of getting out of the economic crisis, NPLs will peak this year and might be doubled.”

He said that once the NPLs have peaked, the banking sector will witness a decline in bad loan provisions.

“As it is acknowledged that Dubai World restructuring has been successfully completed and Dubai Holding [restructuring] is in the process, several firms in the UAE are likely to restructure,” Baltusen told a seminar on the post-crisis era banking sector, organised by the Dubai Chamber of Commerce and Industry in association with the Bankers Business Group.

Rick Pudner, chief executive officer of Emirates NBD, added that the cash flow pressure has led to an increase in bad loans, which are quite high and are expected to grow in the coming months.

However Pudner added that restructuring will help the NPLs to “curve down”.

Pointing to the banks’ restrictions on financing the real estate sector, Baltusen said the real estate sector had hardly seen stabilisation and would not be back to the boom witnessed prior to 2008 in the next two decades.

Momentum

“Momentum has to be built up to regain the confidence to invest in this sector.”

Financing of real estate is very difficult and almost not available, which is understandable. “However finance is available for the developer who is finalising their ongoing projects.” In his welcome address, Hamad Bu Amim, Director General of the Dubai Chamber, said that a recent Dubai Chamber Business Leaders Survey found that high bank charges and restricted lending were two challenges facing the business community.

Bu Amim said new regulations governing the functioning of the financial sector, like those for the retail banking sector that came into force yesterday, are not only putting the sector on the path of recovery and growth, but also boosting investor confidence in the fast recovering banking and financial sector of the emirate.

Liquidity

Pudner said he expected liquidity to improve as more investments are made in infrastructure in the UAE to meet social requirements.

“Liquidity is not a big issue in the UAE market since we experienced a rapid decrease in the deposit rate along with lower lending rate.”

Commenting on potential inflow of foreign capital into the UAE following the regional turmoil, Pudner said: “We are not convinced that there is a huge influx of ‘hot money’ into the UAE or Dubai. While no doubt there has been some of that for the banking system as a whole, this has not been noticeable in terms of new deposit flows.”

On the other hand, Baltussen said: “The liquidity in the banking sector is back and the signs of further improvement are imminent. “Total deposits in the banks in the UAE are Dh1.1 trillion and the size of the foreign cash flow to the emirates is Dh100 billion. Out of this, Dh50 billion is hot money.”

By Zaher Bitar?Staff Reporter

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