UAE banks safe from EU crisis

The debt crisis in the European Union is not expected to have a major impact on UAE banks because of local government support and the fact that they have not extended sovereign loans to Europe, a prominent banker says.

Henry Azzam, Deutsche Bank CEO for the MENA region, said the UAE’s 23 national banks and 28 foreign units now enjoy a stronger position than before while the central bank is closely watching the situation.

“I am not worried about any negative effects on the UAE banks because of the EU debt crisis……banks in the UAE are now in a stronger position than when they were three years ago and I believe they have not provided any major sovereign loans to Greece and other indebted EU members,” Azzam told the Sharjah-based Arabic language daily Alkhaleej.

“There is no doubt the UAE banking sector is capable of dealing with a fresh crisis…we have seen recently a good example how keen the UAE government is in supporting the local banking system following the decision by Emirates NBD to acquire Dubai Bank in line with a decision by the Dubai government, which is the major shareholder in both banks.”

But Azzam said he believes UAE banks’ profitability, which has just recovered from the 2008 global fiscal distress and the 2009 regional debt default crisis, could recede in case inter-bank lending costs rise. He said this would reflect a decline in liquidity, mainly by European banks.

“I think UAE banks will be able to maintain a moderate profit level but the crisis could prompt them to delay any decision to resume normal lending…..local companies could also delay expansion plans to await the outcome of the global financial upheaval,” he said.

The UAE has the largest banking sector in the Middle East in terms of assets, which totalled around Dh1,670 billion at the end of August.Like in other Gulf oil producers, domestic credit in the UAE has sharply slowed down over the past three years because of the 2008 crisis and regional defaults. Credit in the UAE grew by just around two per cent during 2009-2010 compared with more than 30 per cent in the previous two years.

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