What more can Abu Dhabi do?
Banks in the UAE are a long way from provisioning for Dubai’s debt and property crises.
Aabar, an Abu Dhabi state-linked investment vehicle, became the second-largest shareholder in UniCredit, Europe’s third-largest bank by market value, in late June. It paid $2.5 billion. Given the parlous state of Dubai’s economy and property market, Abu Dhabi’s interests might be better served by more investment in UAE banks.
The emirates’ corporate and banking sectors are closely intertwined. UAE banks received more than $19 billion in funding from the federal authorities in 2009. The sector’s total capital adequacy rose from 13.3% to 19.2% last year, with the tier 1 ratio rising from 11.7% to 15.5%.
According to a Fitch report in late June, average non-performing loans would now have to more than double before the average tier 1 ratio fell below the central bank’s minimum 8%.
But loans affected by the $23.5 billion restructuring of state investment agency Dubai World might still need to be classified as problematic, despite arrangements for creditors to receive 100% of their claims. According to Reuters, UAE banks have an estimated $15 billion exposure to Dubai World, with Abu Dhabi Commercial Bank and Dubai’s Emirates NBD thought to have the biggest position.
Dubai World’s problems alone could therefore cause the average problem-loan ratio to double to more than 9.5%