Mashreqbank CEO Sees U.A.E. Bad Loan Provisions Peaking in 2016

  • Al Ghurair says 7 billion dirhams of debt being renegotiated
  • Industry introduced guidelines in absence of bankruptcy law

Bad loan provisions by United Arab Emirates’ banks will peak this year as the industry increasingly works more with businesses to renegotiate terms instead of calling defaults, according to Abdul Aziz Al Ghurair, chairman of the nation’s Banks Federation.

About 7 billion dirhams ($1.9 billion) of loans to companies are being renegotiated under restructuring guidelines outlined by the federation earlier this year in the absence of a bankruptcy law, said Al Ghurair, also chief executive officer of Mashreqbank PSC. Problem loans have slowed “dramatically” in recent months, he said.

The Banks Federation in March agreed a plan that allows for the temporary suspension and restructuring of debt payments for businesses struggling with loan repayments amid an economic slowdown. Draconian laws for defaults can lead people to flee the country in fear of possible jail sentences. Many of the region’s largest banks missed analysts’ earnings estimates in the third quarter on higher provisions.

“As of March this year we have managed to work out 4.5 billion of loans to SMEs to protect the banking system, the customer and the economy,” Al Ghurair said in Dubai on Sunday. “Under the same umbrella we have worked out 2.5 billion dirhams of loans to large corporates to encourage banks not to take unilateral action, otherwise the customer will skip.”

A slowdown in the economy and lower commodity prices, combined with the debt laws led to a revival in “skips” or business owners who quietly leave the country to avoid punishment.

“The banking sector has slowed down this year and profit will come down anywhere from 10 to 20 percent,” Al Ghurair said. “Our problem is we were spoilt, and we got used to high margins and high returns and this was not sustainable.”

Profit next year for the industry will probably be flat, “plus or minus five percent,” he said. A Federal bankruptcy law may be implemented in the first quarter of 2017, Al Ghurair said.

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