Why a grace period is the only option as the lending cap looms for UAE banks
The United Arab Emirates' central bank will probably have to grant extensions to a September deadline for imposing a cap on bank lending to sovereign and government-related entities as some lenders will be unable to make the adjustments in time.
June 2, 2012 8:10 by Reuters
“It depends on what the assets are. If they are goodAbu Dhabinames then there will be a market but if there’s a lot ofDubaiand Dubai GREs then I don’t think there will be many takers,” said a loan banker at a Bahrain-based bank.
As for Western banks, much has been made of the withdrawal of European institutions from the Gulf region, undertaking their own deleveraging programme since the back-end of last year to raise cash after renewed euro zone debt problems.
However, there are others out there with long-established links to GRE lending, such as Standard Chartered, HSBC and Barclays, Jaap Meijer, director of equity research at Arqaam Capital, said in a phone interview.
Regardless of the number of buyers, the sheer volume of debt which could potentially flood the market ahead of September’s deadline would be indigestible. Plus, sales would have to be at fire-sale prices, something both banks and the authorities would want to avoid.
“If you’re to assume a secondary sale scenario, naturally you would also have to assume the seller would have to price the assets at a discount to motivate the buyer, meaning incurring potential losses,” Timucin Engin, associate director at Standard & Poor’s, said.