S&P cuts ratings on four Dubai banks amid slump

NEW YORK, July 7 (Reuters) - Standard & Poor's on Tuesday cut its ratings on four Dubai-based banks, saying a sharp correction in real estate has increased risks to the Dubai's economy and raised hurdles for the banks.

S&P cut the counterparty credit ratings on Emirates Bank International PJSC, National Bank of Dubai, and Mashreqbank MASB.DU by one notch to A-minus from A. It also cut the counterparty rating on Dubai Islamic Bank by one notch to BBB-plus from A-minus.

"The economic slowdown, stock market decline, and dropping real estate prices are raising significant hurdles for these Dubai-based banks," S&P said in a statement. "Looking forward, we expect these factors to significantly slow business growth and lead to a deterioration in asset quality and profitability."

Property prices in the seaside emirate of Dubai have slumped since late last year when a global financial crisis and decline in oil prices reversed a boom in the Gulf Arab region.

"We expect the impact on Dubai's overall economy to be significant, as construction and real estate account for almost 50 percent of Dubai's GDP," S&P said.

Banks in the United Arab Emirates have been receiving significant support from the federal authorities, S&P said. Banks' asset quality is still expected to deteriorate significantly, however, the rating agency said.

"We expect strong extraordinary support to systemically important banks in case of need," S&P said. For that reason, the long-term ratings on the four Dubai banks are one to two notches above their stand-alone credit profiles, the rating agency said. (Reporting by Dena Aubin; Editing by Padraic Cassidy)