UAE banks a rock of stability!

The UAE Central Bank is a solid and conservative organization, exactly like a central bank ought to be and nothing like the spendthrift Federal Reserve or the panicking herd who run the Bank of England these days.

Of course it helps that the country has been operating a tight book for years, and has not got carried away with mortgage lending or exotic financial instruments. Being boring is what good banking should be about.

Realty reality

Last week UAE Central Bank Governor Sultan bin Nasser Al Suwaidi told a bankers lunch in Abu Dhabi that mortgage loans in the UAE stand at only 18 per cent of GDP compared with 101 and 87 per cent respectively in the US and UK.

He said the 24 local and 28 foreign banks in the UAE had lent a total of $47 billion to the real estate sector by the end of 2008, up $15.5 billion in the year, and well below combined reserves of $49 billion.

This is completely different from the subprime mess in the USA because all the creditors and debtors are well known in the UAE which is a relatively small country with all the banks reporting back to the central bank.

The lunchtime statement came as Bourse Dubai celebrated its successful $3.8 billion refinancing with a 5.4 per cent jump in local stock prices. However, this news is now likely to be eclipsed by the bankruptcy of Emaar Properties’ US subsidiary John Laing Homes which has filed for Chapter 11 bankrupcty protection.

Laing bankruptcy shock

Dubai’s largest quoted company bought Laing in June 2006 for a $1 billion and wrote down a total of $730 million against 2008 profits. But clearly further provisions look unavoidable now, and Emaar is not the only local developer to have made top-of-the-market deals overseas.

This is a rude warning that Dubai property companies face multiple shocks as the local and global real estate markets unwind. However, the Bourse Dubai refinancing suggested that local finances might be in better shape than some fear, and the UAE Central Bank statement on real estate debt is similarly reassuring.

Mr Al Suwaidi also remarked that the UAE should remain ‘a more insulated country’ and ‘develop local banking systems with 100 per cent reliance on local funding’. That sounds very sensible.