UAE says banks taken steps to deal with euro debt crisis
Dubai not worried about global recession; Minister of Economy reiterates 2011 GDP growth forecast of 3-3.5 percent; Dubai five-year CDS highest since November 2010
September 27, 2011 12:52 by Reuters
The UAE banks have made necessary provisions to deal with the European debt crisis and a potential global recession is not a worry for the oil producer’s business hub Dubai, top government officials said on Monday.
The global credit crunch pushed the crude-reliant OPEC member into a recession in 2009 when its economy shrank 1.6 percent, its biggest slump since 1988, as oil prices dived and Dubai’s property bubble burst.
A deepening debt crisis in Europe as well as a slowdown in the United States have increased odds for another global recession this year, pushing crude prices well off their 2011 peaks.
Asked about the impact of the euro zone debt troubles, UAE Economy Minister Sultan bin Saeed al-Mansouri told reporters: “UAE banks have taken the necessary provisions to deal with these issues.”
UAE banks, still hesitant to lend following Dubai’s $25 billion debt restructuring in 2010, have not commented on their euro zone exposure but indicated that provisions would continue to rise this year in general as global uncertainty weighs.
Provisions of UAE lenders against bad loans have risen steadily this year to 48.4 billion dirhams ($13.2 billion) in July, their highest level since at least the end of 2008, central bank data shows.
The International Monetary Fund said last week that Europe’s debt crisis had increased the risk exposure of European banks by 300 billion euros ($406 billion) and they needed to recapitalize to ensure they could weather potential losses.
Mansouri also reiterated the government’s forecast that UAE economic growth was likely to accelerate to 3-3.5 percent this year from 1.4 percent in 2010, slightly below a Reuters poll forecast of 3.7 percent, made in June.
“All data now show that the UAE economy will see positive growth this year, hopefully better than 3.5 percent,” he told reporters on the sidelines of a business event in Dubai.
The UAE central bank governor in June forecast 3.5-4 percent growth this year.
Dubai’s Supreme Fiscal Committee chairman, Sheikh Ahmed bin Saeed al-Maktoum, said at the same event he was not worried about the impact of a potential global recession on the Gulf Arab emirate.
Robust oil prices of above $100 per barrel and a revival in trade flows and tourism have helped lift the economy of the UAE, the world’s fourth-largest oil exporter, this year, although the property sector remains weak.
The UAE, which enjoys the world’s sixth-highest per capita income at around $47,400, has also been spared protests that rocked nearby Bahrain, Oman and Yemen and its safe-haven status has boosted business activity.
Still, oil prices have plunged to seven-week lows and growth in UAE business activity dropped to a 15-month low in August, a survey showed, indicating that it is being affected by the global slowdown.
Mansouri said oil prices — at around $104 per barrel on Monday — were not a concern yet.
“If the crisis continues to escalate and we have a default in Europe, then the sentiment will turn negative,” said Mahdi Mattar, chief economist at CAPM Investment.
“This will definitely affect UAE growth, even the ability to refinance debt if you think about the emirate of Dubai. I don’t think we are as isolated as some analysts or officials think.”
In August, passenger traffic at Dubai International Airport grew by 0.8 percent from a year ago, much slower than…
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