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Fitch: Property Cooling Measures Help Curb Risks for UAE Banks
October 23, 2013 / 6:04 AM / in 4 years

Fitch: Property Cooling Measures Help Curb Risks for UAE Banks

(The following statement was released by the rating agency) DUBAI/LONDON, October 23 (Fitch) The doubling of property transaction fees in Dubai to limit speculative buying, reinforced by planned caps for mortgage lending, could help contain property risk for UAE banks as the real estate sector recovers, Fitch Ratings says. In addition, the banks have already built up capital buffers since the 2008 property crisis that give them some protection against asset-quality problems. The new 4% fee effective from 6 October should help property prices recover at more sustainable levels in Dubai. Some estimates suggest that real estate prices in prime areas in the emirate have risen by up to 30% in 2013 to date, after falling by over 60% from their 2008 peak. The higher fees go some way towards helping to prevent excessive speculation, particularly where a high proportion of purchases and sales are purely cash driven. From a credit perspective, the UAE central bank's plans to impose maximum loan-to-value limits for residential mortgages that are being finalised would do more to prevent another build-up of asset-quality problems for banks. Despite the improving economy, signs of a real estate recovery in Dubai and property prices generally rising across the UAE, the banks are still dealing with asset-quality problems from the 2008 crisis. Impaired loans slightly declined to 7.5% on average at end-H113 for the largest nine UAE banks, from 7.8% at end-2012, and largely consist of exposure to real estate and government-related entities (GREs). It is likely that non-performing loans have peaked. The more upbeat operating environment and a return of market confidence in the UAE should prevent any further wide-scale asset-quality deterioration in the short term. However there are still some uncertainties for the property sector in Dubai, particularly outside prime areas. Oversupply in the real estate sector as projects are completed could lead to asset-quality issues, but we expect the medium- to long-term nature of major new projects to reduce this risk. Debt restructuring of troubled Dubai-based GREs is progressing, but further actions cannot be ruled out, so this could add to impaired loans. In the long term we believe planned regulations to restrict loan concentration to GREs would benefit banks' credit profiles. Compliance may take time for some banks with high concentrations. Overall, UAE banks remain profitable, despite the asset-quality issues. We believe that pre-impairment operating profit is able to absorb high credit costs. Fitch core capital ratios have also strengthened, to 13.8% on average for the nine largest banks at end-H113, well above the end-2008 level of 10.7%. This provides a solid cushion against asset-quality deterioration. Contact: Redmond Ramsdale Director Financial Institutions +971 4 424 1202 Fitch Ratings Ltd Al Thuraya Tower 1 Office 1805 Dubai Media City Shaun Miskell Associate Director Financial Institutions +971 4 424 1210 Cynthia Chan Senior Director Fitch Wire +44 20 3530 1655 Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: hannah.huntly@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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