Being a bank in the UAE lately has been about as easy as staying adrift in a leaky boat during a nasty storm. Property loan books have felt the brunt of price declines in Dubai, estimated at up to 50 per cent in some places. Corporate lending has not provided much shelter, either, due to defaults last year at several large regional firms. If banks thought retail loans might rescue them, they were wrong. Defaults on everything from credit cards to mortgages rose last year, bankers say.
As if that is not enough, they are also coping with competition for deposits that has made bringing in new money more costly. That, in turn, has pushed some lenders to increase rates on loans and revise how they calculate interest on variable-rate mortgages, a move that has caused considerable tension with customers. Against this backdrop, the Dh1.2 billion (US$326.6 million) in fourth-quarter losses reported by Abu Dhabi Commercial Bank (ADCB) yesterday were not so earth-shattering, large as they may have been. Sure, analysts had not expected such a dive from its loss of Dh363m a year earlier - even for ADCB, which is thought to have one of the UAE's biggest bundles of non-performing loans.
But most analysts think banks will need to set aside a lot more money to deal with bad loans, the single most important factor in ADCB's losses, through at least the middle of this year. ADCB, in fact, may be doing itself a favour by making its loan books shipshape now rather than saving the job for later. When the problems of the UAE's banks recede, the lenders who took care of their troubled loans early will likely emerge with an advantage in the country's competitive banking market.