UAE Banking Sector by

It has been a dramatic final quarter of the year for the UAE, and particularly for the banking sector. The Nakheel debt problem has thrown into sharp relief the indebtedness of the entire emirate, and this has spread contagion to the general business environment. Even with the bond paid, there still remains a further USD22 billion on the table for rescheduling or restructuring. It is of course a strong positive that Abu Dhabi has been willing to fund a further USD10 billion worth of debt. However, with Dubai having to face an estimated USD120-150 billion debt mountain, the picture has changed for the banks.

We Expect the Impact on the Banks to be Wide-Ranging: In addition to the direct impact of any potential debt shortfall, we believe there is likely to be a secondary impact on banks from deterioration in business and consumer confidence and potential delay or restructuring in the cash flows of their clients. We expect industry in Dubai to be more affected than that in Abu Dhabi. While the main impact on banks will be on provisioning, we would also expect Dubai and the Northern emirates to go through a period of deleveraging, with only Abu Dhabi’s public sector growth ensuring continued credit expansion.

To Download the full report: UAE Banking Sector - EFG Hermes