UAE's Loan Quality To Worsen: Moody's

Source : The Business Times, January 15, 2009

(DUBAI) United Arab Emirates-based banks may face worsening loan quality as the region's slowing property market increases the prospects of developers defaulting, according to Moody's Investors Service.

'Moody's is mainly concerned about the loans to 'opportunistic' developers that have been extended over the past four to five years,' John Tofarides, a Dubai-based Moody's analyst said in a report. 'These factors will negatively affect the credit environment over the next 12 to 18 months.'

UAE's small and medium-sized real estate developers are being hurt as home sales fall, making it harder for them to repay loans. Banks are also cutting lending, which is weighing on property values, bringing the fourfold increase in residential property prices over the last five years to an end. Dubai house prices dropped 8 per cent in the fourth quarter from the prior three months, Colliers CRE said earlier.

Moody's on Dec 16 cut the outlook on four UAE banks, Dubai Islamic Bank PJSC, Dubai Bank, Abu Dhabi Commercial Bank and First Gulf Bank. Liquidity constraints, the equity price collapse, and the sharp drop in oil prices will significantly weaken the UAE's fiscal surplus and real economic growth in 2009, Moody's said. -- Bloomberg