September 24, 2019 / 9:52 AM / a month ago

Fitch predicts property weakness to hit UAE bank assets, loan restructurings

DUBAI, Sept 24 (Reuters) - A weakening property market in the United Arab Emirates (UAE), where prices have fallen by more than 20% since their peak in 2014, is likely to put more pressure on the asset quality of the banking sector, Fitch Ratings agency said.

The UAE, home to the world’s tallest tower, the Burj Khalifa, has faced a sharp real estate slowdown due to oversupply and weaker investment appetite amid lower oil prices.

Fitch said bank debt linked to the UAE’s property sector is increasingly being restructured, which it said was “a sign of weakening asset quality”, the rating agency said in a report published on Tuesday.

Bank loans classified as impaired or at risk of being impaired are already high, Fitch said, averaging 15%-20% of gross loans together, and are likely to increase.

The ratings agency also predicted that “a significant proportion of the $23 billion loans to Dubai government-related entities due to mature by end-2021 may be restructured again”.

Smaller lenders are at risk of a deterioration in asset quality, more so than medium and large banks due to “thinner capital buffers and lower revenue generation,” the report said.

Ratings Agency Moody’s in a separate report said rate cuts on Sept. 18 by the central bank, which took its cue from the U.S. Federal Reserve, are credit negative for local lenders, because it will reduce their net interest margins. (Reporting by Hadeel Al Sayegh; Editing by Alexander Smith)

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