iPhone | iPad
Android
Huawei
KT APPDOWNLOAD
Dubai Banks’ Exposure to Real Estate Sector Rises to 23pc
DUBAI — The exposure of Dubai banks to the troubled real estate sector is 23 per cent,
The second highest in the GCC after Bahrain, while banks in Abu Dhabi have the least at nine per cent, a report by Kuwait Financial Centre, or Markaz, said.
Bahrain banks have the highest exposure with 26 per cent. Kuwait has 16 per cent while Qatar has 10 per cent, according to the report.
“Toxic real estate loans should lead to lower willingness and ability to real estate lending in the UAE thus providing distressed investment opportunity or markets wherein prices have fallen to distressed levels, but which provides with attractive future prospects,” M.R. Raghu, Head of Research at Markaz, said. Speaking to Khaleej Times from his Kuwait-based office, Raghu said the high exposure to real estate assets posed grave challenges to bank financing.
“We see the UAE mortgage sector remaining very vulnerable. When you have such huge exposure to troubled assets, it will be a drag of the economy. Banks will continue to face severe constraints to lend to the real estate sector,” Raghu said.
He said a contraction in banks’ asset size and increased capital requirements with expected losses from real estate loans should lead to lower willingness and ability to lending in the UAE, and would provide distressed investment opportunity.
The UAE banks’ asset size growth averaged “a dismal” one per cent in the last four quarters freezing up the banks’ ability to lend, which was evident in the contraction in net lending which stood almost stagnant from the fourth quarter in 2008. Real estate and construction sector credit contracted by a massive 8.7 per cent in Q1-09 alone.
Raghu said a developer in a distressed market could continue to proceed with his development only if he had a deeper pocket or if he got enough credit to overcome the slump. “At the same time, it may demand more equity for the distressed investment than necessary and thus erode optimal return possibilities.”
He said an economy with lesser exposure to troubled sector could be expected to bounce back quicker than the others. “In the current scenario, economies with least exposure to real estate and financial services sector are to be considered. Abu Dhabi, Qatar
and Kuwait have the least exposure to these sector. Combining the above two factors, we consider Abu Dhabi, Qatar
and Kuwait as fundamentally strong economies where we can look for attractive distressed opportunities.” — issacjohn@khaleejtimes.com
More news from Local Business
The latest branch is the second branch of the company at Sahara Centre and one of the eight branches opened in the UAE this year, the exchange house said in a statement
Events to be staged at the DWTC, comprising diverse sectors including construction, energy, technology, beauty, food, healthcare, environment and automotive, will mark the emirate’s post-pandemic economic recovery
Dubai FDI supports expansion by Amazon Web Services with upcoming data centres in the UAE
Some banks are now permitting their customers to purchase Bitcoin and other crypto currencies after conducting due diligence tests on payments
The percentage of using the digital transformation platform has grown to 96 per cent compared to the first half of last year, when the percentage of use did not exceed 76 per cent