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Middle East: Regional banks display caution

Perhaps it should not come as a shock that UK banks have the biggest exposure on aggregate to Dubai World.

From peak to trough
Pricing Dubai risk

It is thought that they have about a $5 billion exposure to the state-investment company which is poised to restructure $22 billion of liabilities.

The biggest exposure is held by RBS followed by HSBC, Standard Chartered and Lloyds. A large chunk of these banks’ exposures is to the performing businesses within Dubai World although RBS, for example, has about $700 million outstanding to the entities put forward for restructuring. The relatively large exposure of UK banks to Dubai is partly for historical reasons and partly because they are the biggest banks, as a group, operating in the emirate.

What’s interesting, however, is that while the UK banks and others in the western world bought into the Dubai vision, so few Middle East regional banks did.

National Bank of Kuwait, for example, has zero exposure to the emirate except through the inter-bank lending market. "We have no direct exposure to Dubai Inc," says Ibrahim Dabdoub, chief executive at NBK. That’s partly because of opportunities at home but also because Dabdoub was never convinced by Dubai’s business model. He says most of Dubai’s financing has been provided by western and local banks.

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