Tight credit, Dubai woes may curb Gulf growth
Dubai, February 10, 2010
The Gulf region's economic recovery risks are being hampered as lending remains tight and state conglomerate Dubai World struggles to resolve its debt problems, a senior investment banker said.
Dubai, one of the seven sheikhdoms that make up the United Arab Emirates, spooked global markets in November by announcing it would seek a payment standstill for $26 billion of debts at conglomerate Dubai World.
Talks between the state-owned firm and its creditor banks are still ongoing, with updates on progress rare. Dubai's stock exchange in January alone fell nearly 15 per cent, with analysts citing uncertainty about the restructuring as one of the main reasons.
'All eyes will be on Dubai World, markets are hoping that the restructuring of Dubai World's (remaining) $22 billion debt will be speedy ... the risk is that this exercise would be lengthy and could lead to many surprises in the month ahead,' Henry Azzam, chief executive of Deutsche Bank's Middle East and North Africa division, told a conference on securities in the Gulf.
Most Gulf states are expected to recover in 2010, after the global financial crisis froze credit in the world's top oil exporting region last year.
Qatar and Saudi Arabia are expected to outperform their neighbours with gross domestic product (GDP) growth estimated at around 16 per cent and 3.8 per cent respectively, while the UAE is seen lagging with around 2.5 per cent growth, according to analysts polled by Reuters in January.
The region's overall recovery, however, is at risk from several factors.
The regional banking sector already took a hit in 2009 when the era of cheap borrowing costs abruptly came to an end and the domestic real estate sector fell sharply.
Mortgage defaults and non-performing loans are likely to rise further and banks will be keeping a tight lid on lending.
'2010 is likely to be a tough year for banks with non-performing loans to peak in the next two quarters ... the risk is that banks with the uncertainties in the local, regional and international markets ... will maintain the conservative lending policy and this could impact our growth scenario,' Azzam said.
Other risks for the economic recovery include a volatile oil price, regional instability in countries such as Yemen, Iran and Iraq, lack of transparency and 'inadequate' corporate governance, Azzam said.-Reuters