The UAE banks could book up to Dh3 billion in provisions related to Dubai World's debt restructuring in the second half of this year, dampening the banking industry's performance, according to investment bank Shuaa Capital.
Sofia El Boury, a banking analyst at Shuaa Capital's Research Department, said all of the UAE banks have not come clear on their exposure to Dubai World "provisions which could range between Dh2 billion to Dh3bn in the second half considering the latest data."
"Taking into account the latest public data on the restructuring proposal terms as well as the additional general provisions taken by banks in H1 2010, we estimated that they could require up to Dh3 billion on top of the Dh 3.5bn H1 10 provision additions, Dh1.7bn of which are known to be related to DW, the neediest being Dubai-based Emirates NBD," Shuaa analysts said in a recent note.
Only two banks Abu Dhabi Commercial Bank and Emirates NBD - particularly the former - have announced exposures to the Dubai World. Providing thorough disclosure about its exposure, ADCB reported an outstanding amount of Dh6.6 billion and set aside impairment charges of Dh1.035bn or 166 per cent of the outstanding amount.
Abdul Aziz Al Ghurair, CEO of Mashreq Bank, said last week that provisions taken by banks against their exposure to Dubai conglomerate could range between five and 10 per cent of the debt.
Mashreq bank, Al Ghurair said, would set aside 5 per cent of the value of the loans to Dubai World to cover impairment in the third quarter.
The UAE banks, according to El Boury, will have to include specific provisioning build-up required under IAS rules with regard to Dubai World in the second half of this year unless the UAE Central Bank tells them to do otherwise.
During the first half, actual data revealed that most UAE banks elected to follow the UAE Central Bank's recommendation by solely booking general provisions against their DW exposure.
The UAE banks booked Dh3.5bn in specific provisions in the first half this year, out of that Dh1.7bn were related to Dubai World, it said.
Dubai-based Emirates NBD bank provided little information with regard to its exposure to Dubai World which is believed to be much higher. The bank, according to El Boury, is expected to allocate the maximum amount among the local banks for its exposure to Dubai conglomerate during second half this year.
Shuaa Capital believes Nakheel is restructuring a separate debt of approximately $15-20bn apart from the $24.9bn being restructured by its parent company Dubai World which has guaranteed the loan for its Nakheel.
Shuaa Capital said $24.9bn of debt which is in the restructuring process with creditors is owed or guaranteed by Dubai World to Nakheel at the group level. "Nakheel has additional financial and non-financial debt that is being restructured separately. We estimate about $5 billion in financial debt and around $15bn in debt is owed to trade creditors and customers," Shuaa analysts said in the note.
The Shuaa note said that the UAE banks' stock prices have already discounted provisioning requirements against their DW exposure.
As top banking picks and based on relatively stronger fundamentals, Shuaa still favours National Bank of Abu Dhabi (NBAD), First Gulf Bank (FGB) and Union National Bank (UNB) which trade at current PB multiples of 1.3x, 0.9x and 0.8x respectively. Current market prices imply further upside potential, it said.
By Waheed Abbas
© Emirates 24|7 2010
