The risk of Standard Chartered's exposure to non-performing loans in the UAE will weigh heavily on the bank's earnings, due to be announced next month, a report says. Heightened concerns about the bank's credit and income risks in the UAE mean the bank will begin to underperform its rival lender, HSBC, Daniel Tabbush and Suangsuda Sinsadok, analysts at CLSA, said in the report released yesterday.
Standard Chartered would be "far more cautious" when announcing its earnings on March 3 after it emerged that Dubai World was seeking to delay payment of US$22 billion (Dh80.8bn) in debt to creditors. But HSBC's results, due on March 1, were unlikely to raise new concerns, the analysts said. "Standard Chartered has far more exposure in the UAE than HSBC, making it a greater risk to the group," said the report from the Hong Kong-based brokerage and investment group.
Standard Chartered and HSBC are among the UK banks owed an estimated $5bn by Dubai World. Both sit on a committee of seven creditor banks leading negotiations with the Government over Dubai World's debt standstill and restructuring proposals. Standard Chartered had 10 per cent of its total loan book in countries in the Middle East and South Asia (MESA), mainly in the UAE, in the first half of last year, the report said. HSBC had only 1.7 per cent of its loans in the region.
The former has a greater exposure to non-performing loans in the country than HSBC. MESA accounted for almost 25 per cent of Standard Chartered's total impaired loans, compared with HSBC's 3 per cent, the report stated. Standard Chartered officials were not available for comment yesterday. Bank earnings this year are expected to still be constrained by the need to set aside more reserves to protect themselves against impaired loans.