'Increase in bad loans natural'

An expected increase in non-performing loans (NPLs) for banks in the UAE is "natural", a central bank official said, adding that lenders in the region may have to book additional writedowns this year.

The official's comments come a day after the UAE Central Bank governor said he expected an increase in bad loans in 2010 to 6.4 per cent from 4.4 per cent a year ago.

"It is natural, it is not alarming. Because of the crisis there is a further deterioration in real estate and rents," said Saeed Abdullah Al Hamiz, Senior Executive Director for banking supervision and examination at the UAE Central Bank.

Loans and advances of the banking sector in the UAE totalled Dh1.02 trillion in 2009, according to Central Bank statistics. With non-performing loans at 4.4 per cent, banks may have to write off about Dh44 billion.

In the event of non-performing loans rising to 6.4 per cent in 2010 and given the slow credit growth expected this year, the figure could easily be more than Dh64bn.

Some of the region's largest banks, such as Mashreq and Abu Dhabi Commercial Bank, posted fourth-quarter losses as a result of a steep increase in loan loss provisions.

"When times are good the ratio of non-performing loans to loans falls and in a period of economic slowdown, loan growth declines and the ratio of non-performing loans increases," said Giyas Gokkent, Chief Economist at National Bank of Abu Dhabi.

"When recovery is not possible banks might have to take it off their books," he added.

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