Crises are beginning to appear in the UAE banking sector as the real estate and retail sectors slumped, casting a negative impact on creditors, the Bloomberg news agency reported.
One of the country’s smallest banks is currently under bailout, and non-performing loans are expected to increase this year as lenders consider merger options to keep them competitive, the agency said in an economic report.
According to analysts, slower real estate sales, higher interest rates and higher lending rates in the light of improved economic growth may all mean emergency reserves will jump to a quarter.
„We do not expect a significant recovery in economic growth this year,“ said Shubair Malik, an analyst at Dubai-based investment bank EFG Hermes. „We would not be surprised if there was a deterioration in the credit quality of small and medium-sized enterprises and commercial segments.“
Bloomberg said banks were largely able to avoid the impact of slowing economic growth by making moderate profits and earmarking emergency reserves to counter the bad loans in the third quarter.
Dubai’s real estate sector has failed to recover over the past three years, causing increased pressure on lenders, the agency said. Property prices and rents have fallen while supply has increased on demand.