SME debt crisis fallout shows signs of abating

NBAD says that the era of SME bad debt woes is not over yet despite the sector's improvement.

Nilanjan Ray said “we are not seeing further rapid deterioration” in relation to the SME debt crisis. Jeffrey E Biteng / The National

A top National Bank of Abu Dhabi (NBAD) executive has said the fallout from the SME debt crisis has abated but many owners are still facing difficulties repaying lenders following the crash in commodity prices.

“We cannot say that the problem is behind us yet,” Nilanjan Ray, head of commercial banking at the National Bank of Abu Dhabi, said in Dubai yesterday.

“What we can say is that we are not seeing further rapid deterioration.”

The banker’s comments come as the local bank earnings season comes to an end and many balance sheets are showing more holes from debt gone sour.

While NBAD does not break out revenues from SMEs, the bank this week said that money set aside to cover bad debt grew 68 per cent in the third quarter from the same period last year. That has not stopped NBAD from lending to small businesses, Mr Ray said, but risky forms of lending such as unsecured loans have been stopped and like all banks NBAD has become more circumspect about who it lends to.

He noted that over the past three years NBAD’s lending to SMEs has jumped 300 per cent despite the woes facing the segment. Like many other bankers, Mr Ray hailed the recently approved bankruptcy law saying it will foster confidence among businessmen. He pointed out, however, that a number of technical issues surrounding the law will mean that another couple of years are needed for it to see its full effects.

“That is a really important step that will help the SME segment, but a couple of more developments in terms of asset registry and some other issue in terms of recovery of assets, the ability to register a particular asset across jurisdictions in the country would all help,” he said. “For the full benefit to appear it may take a couple of years.”

The lack of insolvency regulations during Dubai’s credit crisis between 2009 and 2010 led to a number of businessmen being detained for unpaid debts, with many fleeing the country to avoid arrest. That scenario has been replaying itself on a much smaller scale over the past two years as SMEs face diffi­culty in repaying debt amid the collapse of oil prices and the subsequent fall in government spending. The bankruptcy law will decriminalise defaulting on debt and promote restructuring of loans.

Abdul Aziz Al Ghurair, the chief executive of Mashreq and the head of the UAE Banks Federation, said in November that some small business owners had skipped town, leaving about Dh5 billion of unsettled loans.

Separately, NBAD said that it’s seeking a US$2bn syndicated loan that it expects to complete before the end of the year and which will be used in part to refinance existing loans.

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