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Dubai World plan not to affect banks

DUBAI — The impact of conglomerate Dubai World’s restructuring plan is expected to be “manageable” for UAE banks, Moody’s ratings agency said.

“The proposed framework for the restructuring of Dubai World Group (DWG) is unlikely to have direct negative rating implications for banks in the United Arab Emirates,” the agency said in a statement. “However... the sustained adverse economic conditions are continuing to pressure the country’s banking system,” it added.

Two local banks, Emirates NBD and Abu Dhabi Commercial Bank, are part of a seven-member committee that has been leading the negotiations between state-owned Dubai World and its nearly 100 creditors. These seven banks are said to hold a majority of exposure to the indebted investment holding firm.

Most of the major creditors to the group expressed their support for the restructuring plan, though final details are still to be disclosed as negotiations are ongoing.

“Moody’s conservatively estimates that no more than $10 billion of UAE banks’ exposures relates to the DWG proposed restructuring,” the statement said, quoting Moody’s analyst John Tofarides. “Using this estimate... even a 25 per cent impairment loss represents three to four months of pre-provision earnings for the rated banks, which can therefore be easily replenished,” he added.

The impact, however, would differ “considerably” from one bank to another, with the most exposed banks seeing a maximum loss of six to eight months of pre-provision profits, he said.