Tight credit, Dubai woes may curb Gulf growth - banker

10. February. 2010
ArabianBusiness (by: Nicolas Parasie)

The Gulf region's economic recovery risks 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 UAE, spooked global markets in November by announcing it would seek a payment standstill for $26bn 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 DFM exchange in January alone fell nearly 15 percent, 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 (dollars) 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 Arab 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 percent and 3.8 percent respectively, while the UAE is seen lagging with around 2.5 percent 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 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.