UAE bank mortgage loans pick up

UAE banks boosted real estate mortgage credit by nearly Dh22 billion in the first 10 months of 2010 to reverse a slowdown in 2009 because of a decline in the sector and a post-crisis lending tightness, official figures showed Wednesday.

The figures by the central bank showed mortgage loans swelled to nearly Dh163.9 billion at the end of last October from about Dh141.7 billion at the end of 2009, an increase of around 15.6 per cent.

The increase indicated a slight recovery in real estate credit extended by the country’s 51 banks during the first 10 months of 2010 as they grew by nearly Dh16 billion or around 12.8 per cent through 2009.

Analysts said the recovery in mortgage loans reflected a gradual return of investor’s confidence and slight easing of curbs on lending to some sectors.

In recent press comments, Nakheel’s Chairman Ali Rashid Lootah said he expected the real estate sector to be on top of the sectors that are projected to recover from the downturn caused by the global credit squeeze.

 He said the real estate sector is going through a state of stability in terms of rents and property prices, adding that this made it more attractive for investors.

Mortgage loans in the UAE sharply slowed down in 2009 compared with 2008 as banks maintained their tight credit policies and chopped close to Dh13 billion off their balance sheets for bad debt, according to the central bank.

Poor investors’ confidence because of a general downturn in the real estate sector and bank liquidity shortages also contributed to the plunge in mortgage credit growth as part of an overall slowdown in domestic loans.

Lower credit allied with high bad debt provisions to depress the net earnings of UAE banks in 2009 despite strong general performance.

In contrast with mortgage credit, banks’ general lending activity has remained dormant as they appear to be still risk-averse and demand by the private sector for loans has remained weak. Public sector borrowing also slackened in the first half of 2010 before picking up by nearly Dh10 billion in the second half.

The figures showed banks’ total credit to residents slipped to Dh777.7 billion at the end of October from Dh788.8 billion at the end of 2009.

The drop was caused by a decline in claims on the private sector to around Dh582.9 billion from Dh607 billion in the same period.

In press remarks last month, a UAE banker said banks were considering restructuring of real estate mortgage loans to avert a massive default crisis following a steep fall in property prices.

Abdullah bin Khalaf Al-Otaiba, Director of the Corporate Banking Group at the government-controlled National Bank of Abu Dhabi (NBAD), said banks are studying this option because of a sharp decline in the property asset value.

“They also realize what guarantees they have received when they extended these loans…it has become clear to them that the income from mortgaged property will not cover the debt installments agreed on between the banks and debtors before the eruption of the global fiscal crisis,” Otaiba said.

“This is encouraging banks and debtors to consider restructuring of the mortgage loans…extending the period of repayment with unchanged interest rates is among the options being considered.”

According to a key Western financial institution, UIAE banks have emerged as more vulnerable to real estate downturns than those in other Gulf oil producers because of their massive lending for that sector.

The Washington-based Institute of International Finance (IIF) said overexposure to real estate and Saudi businesses has eroded the Gulf banks’ asset quality.

“In the UAE, the banking system is significantly exposed to the construction sector and the highly speculative real estate sector.

Several banks in the UAE are exposed to high levels of credit risk in connection with the family-affiliated conglomerates in Saudi Arabia and government-related entities in Dubai.”

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