UAE banks expected to keep up bad loan provisioning in 2010

UAE banks are expected to push ahead with a drive to bolster their bad debt provisions in line with new Central Bank instructions to clean up their balance sheets and lessen risks, analysts said yesterday.

The country's 24 national banks and 28 foreign units set aside about Dh800 million for non-performing loan (NPL) provisions in January and more allocations will likely be made through the year, they said.

"The year 2009 was a year of provisions and I don't think this year will be different for UAE banks," said Humam Al Shamaa, financial analyst at the Abu Dhabi-based Al Fajr Securities, a key UAE stockbrokerage and investment firm.

"The banks need to take provisions because of the Dubai debt, strict regulations by the Central Bank and risks besetting the real estate sector. As you know, banks have been very tight in terms of lending to the real estate sector and this will lead to further decline in the sector. This will consequently prompt the banks to allocate more provisions against mortgage loans."

Central Bank figures showed the combined NPL provisions of banks swelled to about Dh33.4 billion at the end of January 2010 from Dh32.6bn at the end of 2009. During 2009 alone, provisions totalled a record Dh12.9bn.

Banks stepped up provision allocations last year following losses in global markets and a severe debt default problem involving the Saad and Algosaibi family businesses of Saudi Arabia, to which some UAE banks were exposed.

Experts expect the 2009 profits to be slightly lower than the 2008 earnings because of high provisions, but they believe banks will return to growth in 2010.

"I believe the banks will continue making provisions during 2010 in compliance with the regulations of the Central Bank and as long as they feel their assets are at risk," said Ziad Dabbas, financial advisor at the government-controlled National Bank of Abu Dhabi, which reported a slight increase in 2009 profits. "Provisions through 2010 might be lower than in 2009 but banks will not stop taking provisions. I believe allocation of provisions is needed by banks to demonstrate their adherence to the Central Bank rules and show that their assets are real. This will bolster their position and reassure investors and depositors."

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