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Why a grace period is the only option as the lending cap looms for UAE banks

uae banking lending limit extension

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.

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June 2, 2012 8:10 by



OTHER OPTIONS LACKING

 

Apart from deleveraging, other options to reduce the levels of exposure at local banks are limited.

Securitisation would have the twin benefit of taking GRE debt off the balance sheet and raising longer-term liquidity, thereby improving another aspect of the local banking sector and the predominance of short-term deposits backing long-term loans.

 

However, the market isn’t in place in the Gulf region.

 

“You need a standardisation history in terms of loan losses, and you need a long-term horizon for that, but unfortunately, the regional market is dominated by expatriate bankers on limited-term contracts,” the UAE-based banker said.

 

“Also, the quality of people in this region is not yet sophisticated enough to be able to structure a securitisation and sell it internally to senior management.”

Not renewing existing exposures is another route but one which would take time to implement. And it would not be possible before the September deadline in any serious guise.

 

Such measures will also be complicated by the restructurings undertaken by DubaiGREs in the last couple of years, with large amounts of cash termed out for significant periods of time – Dubai World’s $25 billion restructuring saw bank debt extended for between five and eight years.

 

Talks on the ongoing restructuring of $6 billion of bank debt at Dubai Group, a unit of Dubai Holding, could also be affected as banks might be reluctant to swallow the proposed extension of up to 12 years.

ENBD holds around 40 percent of the Dubai Group debt.

The impending restrictions are already having an impact on new lending, with oneDubai-based banker saying a syndication of DIFC Investments’ $1 billion loan was important as the banks involved were conscious of wanting to offload some of the exposure because of the changes.

 

Future bond issuance from sovereign and GRE names could also be affected as banks are the main buyers of these offerings in the region, Engin at Standard & Poor’s said. ($1 = 3.6730 UAE dirhams)      (Additional Reporting by Rachna Uppal and Raissa Kasolowsky inAbu Dhabi;

Editing by Susan Fenton)



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