The latest Middle East Market Overview has showed shares at Abu Dhabi Commercial Bank gained 9.9 per cent in July, despite the bank posting a AED306m net loss for the first half of the year.

National Bank of Abu Dhabi stock ended up 4.1 per cent last month, while Emirates NBD closed the month up 2.9 per cent on the previous month.

Dubai Islamic Bank also gained 0.5 per cent on the month, while Commercial Bank of Dubai’s share price ended up 1 per cent despite the bank reporting a 4.6 per cent fall in Q2 net profit.

In the real estate sector, Emaar gained 6.5 per cent after swinging to a net profit of AED802m in Q2 this tear, while Union Properties was up 6.6 per cent. However, Aldar Properties fell 10.9 per cent on the month, and Sorouh Real Estate dipped 0.6 per cent in July.

Construction firm Arabtec ended the month up 2.3 per cent, while in the telecoms sector, Etisalat ended negative 3.4 per cent while Du gained 4.1 per cent.

Overall, both UAE indices, Dubai Financial Market and the Abu Dhabi Securities Exchange, reversed the previous month’s negative trends, reporting gains of 3.5 per cent and 1.3 per cent respectively.

UAE banks have enough liquidity to withstand another financial crisis or fresh exposure to debtor defaults, the Central Bank has claimed.

On Monday, it issued a report outlining monetary developments in the UAE during this year’s first quarter. In the study, the Central Bank said that local banks had demonstrated financial stability after making relatively high investments.

“UAE banks now enjoy a solid base of capital and reserves, which have largely boosted their adequacy ratio,” the report said, according to Business 24/7. “This increase will allow the banks to weather a new economic downturn and any possible rise in bad debt.”

Capital adequacy ratios among the UAE’s 52 local banks had climbed to 20.3 per cent in Q1, 11 per cent higher than minimal target set by the Central Bank last September.

The study also showed an AED252.8bn surge in the banks’ consolidated shareholders equity from AED231.4bn in late 2009.

Solid liquidity among the banks was sparked by their investments in CDs, which amounted to AED63.3bn in late March compared with AED39.4bn the previous year.

The acting CEO of Al Khalij Commercial Bank has insisted there is still much work to be done before a proposed merger with International Bank of Qatar (IBQ) reaches completion.

In a press statement, it was revealed that plans to consolidate the two Qatari banks had been approved by Al Khalij’s board.

But McCall said a tie-up was far from imminent. “We should keep in mind that the discussions are still at a preliminary stage and that no decisions have been made so far.”

Al Khalij is expected to appoint financial, legal and business advisers soon to thrash out a deal with IBQ.

Sheikh Hamad Bin Faisal Bin Thani Al-Thani, Al Khalij chairman and managing director, said the merger would boost market competitiveness and bring consolidation to the Qatari banking industry.

He added that shareholders from both sides would benefit from “the accelerated expansion inside and outside Qatar and from higher profitability and value perspectives”.

National Commercial Bank deposits swelled by investors diverting funds to Saudi.

National Commercial Bank (NCB), Saudi Arabia’s biggest bank by assets, says its deposits have swollen after investors’ redirected their money to avoid the fallout of the Dubai World debt debacle.

State-owned NCB is being viewed as a safer option, group chief legal counsel Hussein S. Akeil told The Brief magazine, sister publication to .Commerce.

“Dubai was the golden child but now the money is making its way out of the country. I’m seeing a flight of money into the safe havens, something that’s reflected in NCB’s deposits.

“Eventually, there will be pressure to use this money in the Saudi banks. In a world that’s continuing to emerge from recession, you can’t just sit on these funds, so something will come out of it.”

He adds: “People will find ways to use this money and projects to spend it on, which from my point of view means more corporate loans and letters of credit and guarantee.”

Akeil provides the legal support for NCB’s deals. He says although NCB has investments in the UAE, it has no exposure to either the embattled property developer Nakheel or Dubai World.

Middle East-based and international banks have been checking their exposure to Dubai World as crisis talks continue over its debt restructuring.

Most recently, Emirates NBD, the UAE’s largest banking group, followed its central bank’s directive not to book provisions for the government conglomerate in the first quarter of 2010.

ENBD is part of the committee of banks in negotiations with Dubai World that also includes HSBC, Standard Chartered, Royal Bank of Scotland, Lloyds TSB and Abu Dhabi Commercial Bank.

The conglomerate, which owns The Palm Jumeirah developer Nakheel, must restructure $24.8bn of debt.

Akeil adds: “In Dubai, you had a lot of exposure to international buyers, so when things went bad they just left and you’re had a handful of large developers facing financial difficulties. Whereas in Saudi, you’ve got a captive audience in that buying real estate is the reserve of the country’s residents.

“Saudi doesn’t have the huge developers like Nakheel and Dubai World, you’ve got smaller builders but more of them. Plus, we don’t have the large planned communities like in the UAE, and the ones we do have are almost always government-sponsored.”

NCB’s assets at the end of 2009 totalled US$68.7bn and its profit hit US$1.07bn.

Read the full interview with Hussein S. Akeil in the next issue of legal monthly The Brief, out in May.

Respondents to online .Commerce questionnaire say accessing finance prior to economic crisis was too easy.

Banks across the UAE were far too reckless with lending throughout the mid-noughties as the first signs of an economic downturn began to emerge, respondents to a .Commerce survey have claimed.

Nearly 73 per cent of people polled believe few banks carried out stringent financial checks on customers, making it easy for individuals and companies to access cash.

Other respondents said the government could have better managed the UAE banking industry prior to the financial crisis. Among those polled, nearly 45 per cent claimed the state had done an average job overseeing the sector, while more than 16 per cent said it was less than adequate.

On whether it would be easier for businesses to access credit in the UAE this year, 49 per cent of respondents said yes. The remaining 51 per cent believe it will be equally as tough to secure credit in 2010 as last year when most banks curbed their lending amid the financial crisis.

In other findings, redundancies remain a concern for many UAE businesses, with nearly 44 per cent saying further cuts are fairly likely this year. Around nine per cent said they were very likely, while almost 47 per cent insisted there would be no scaling back in 2010.

Company profits were hardest hit last year, according to 44 per cent of those polled. Employees also suffered, with 15 per cent of respondents saying their employers made redundancies in 2009 as businesses looked to cut costs. Other corporate issues affected by the downturn were cash flow (28 per cent) and access to credit (11 per cent).

But even during a crippling downturn, some companies still managed to claim profits from their investments last year. Commodities and currencies provided the most lucrative returns, accounting for 26 per cent and nearly 23 per cent respectively.

Infrastructure, private equity and real estate also generated profits for some businesses throughout 2009.

The June edition of .Commerce will feature an extensive report covering the results from the readers’ survey.

After a period of tight lending last year amid the financial crisis, when will UAE bank restrictions ease up? Rob Morris reports.

British PR guru Max Clifford may be considered a master of spin, but even he would struggle to repair the tarnished image of banking chief executives. Two years ago, the world was plunged into a financial crisis that many believe surpassed even the devastating Wall Street Crash of 1929. With financial markets in ruins, blame was quickly apportioned to banks that stood accused of frittering away billions of dollars on bad loans and investments.

If sentiment towards them was not bad enough, bank chiefs in the west made themselves even more unpopular last year by claiming million-dollar bonuses. Such was the noise of public discontent, some have since promised to forgo the money or give their cheques to charity.

In the Middle East, the backlash has been less vitriolic, although UAE chiefs have suffered similar criticism to their western compatriots for lending too readily.

Critics claim that during the boom years from the early noughties to 2007, banks were falling over themselves to dish out loans and mortgages without checking whether account holders had the means to pay them back. That they were left with huge deficits from non-performing loans (NPLs) as customers either pleaded poverty or skipped the country was no major surprise.

After years of frivolous lending, UAE banks suddenly tightened the purse strings and introduced stricter criteria on loans in 2009. Little has changed since then with many still cautious as their exposure to government investment arm Dubai World, which is thrashing out a restructuring plan for its US$26bn debt, remains unclear. Even the government’s US$4.35bn cash injection last February to increase liquidity has failed to stimulate lending.

“Because of uncertainty in the market, the banks are not encouraged to lend as they want to preserve what they have on their books,” says an investment bank analyst, who wishes to remain anonymous. “You have more defaults on personal and corporate loans, so banks are aware the downturn is not over yet and that non-performing loans will continue. 2010 is probably going to be another year of NPLs, perhaps at a lower rate, although the economy is still not stable.”

The analyst adds a significant increase in the level of borrowing is unlikely until Dubai World settles its debt. “For banks in general and for outsiders, the UAE is risky. For lenders, as long as they see uncertainty and risk in the economy they will not be motivated to lend.”

Some economists believe a fresh government cash injection would encourage UAE banks to lend again. The view is shared by Abu Dhabi Islamic Bank CEO Tirad Mahmoud, who recently claimed local banks had no option but to raise deposit rates to attract customers. This in turn has led to an increase in higher lending rates and subsequent drop in borrowing, he added.

This sentiment is echoed by Timothy Fox, chief economist for Emirates NBD, who says banks will maintain strict lending policies until deposits have been rebuilt. “It is not so much that banks have imposed tighter lending restrictions, rather that banks need to boost their deposit bases first before they are able to make new loans,” he says.

“Banks have a target to reduce loan deposit ratios below 100, but at around 104 currently there is still some way to go. Until that starts to happen credit growth looks likely to remain weak, despite the fact that money supply growth has actually begun to recover. As such, there is liquidity in the financial system, but that liquidity will only begin to flow into the broader economy once bank deposit bases have been rebuilt.”

Mahmoud said the UAE Central Bank could stimulate lending by either investing more cash in the industry or reducing loans-to-deposits ratios. But the unnamed investment analyst disagrees, insisting local banks already have strong capital adequacy ratios (CAR) – a figure that determines a bank’s financial strength by measuring capital against its risk.

The government has ruled out pumping fresh funds into the UAE banking industry.

Any hopes UAE banking chiefs had of securing financial support from the government were effectively dashed on Thursday by the finance ministry.

Younis al Khouri, director general at the finance ministry, told reporters that banks in the UAE were strong enough to withstand any shock, even one arising from the Dubai World restructuring. He added that no capital injection was needed for now. In other words, 2010 could be a year when the banking industry has to stand on its own two feet and not rely on handouts.

How banking chiefs have reacted to the news is unclear, with none commenting thus far. But the news is sure to ruffle a few feathers at a time when the real fallout from the $26bn Dubai World debt restructuring has yet to be determined.

Some analysts believe the finance ministry has taken the wrong decision by effectively withholding support. They say the banks that lent money to Dubai World may be forced to take debt write-downs from the state-owned developer.

Speaking to Reuters, UBS analyst Saud Masud said: “We believe investors are already expecting a significant haircut to the Dubai World debt entailing $22 billion in obligations, ie: roughly 40 cents with a payout over several years.

“Such a haircut would likely challenge the bankability of UAE financials as books may need to be adjusted further.”

In this scenario, commentators believe banks with most exposure to the debt, such as Emirates NBD and Abu Dhabi Commercial Bank, would need financial assistance to cover any shortfall.

Discussions between Dubai World and the banks regarding the former’s restructuring plan will take place soon; it’s expected that the debt-laden conglomerate will ask for an extension to pay off all creditors.

Realistically, the banks have little option but to accept. They, like most companies awaiting cash, cannot force their struggling clients to hand over money that they may not have. So, with this in mind, it appears local banks may be set for another difficult year – especially if the government refuses to pump fresh funds into the industry.

Interest rates on mortgages are set to rise following the Central Bank’s Eibor revision.

Homeowners across the UAE will have collectively groaned at the Central Bank’s attempt to appease local banks by increasing the Emirates interbank offered rate (Eibor).

Established as the interest rate that banks charge when lending to one another, Eibor changes every three months to reflect market conditions. On Tuesday, it was increased to 2.2% from 1.9% following a steady rise in the interest that banks are claiming from each other, which spells bad news for property owners.

The measure is often used to determine interest on loans, including variable rates mortgages, so when Eibor rises so do some homeowners’ monthly repayment installments.

Even with an increase, some banks argue their cost of borrowing is still not reflected by the Eibor rate. They insist a shortage of liquidity in the financial system has forced market rates to remain high.

Nothing can be done to alter Eibor for at least three months following the rate increase on Tuesday. But that is scant consolation for some property owners who will have to dig deep to keep up with rising monthly mortgage repayments. They already have to contend with extortionately high interest rates, ranging from around 6.5% to 8.5% in Dubai, according to Independent Finance, a mortgage adviser to UAE property buyers. Such rates are nearly double those of other countries.

Of course, UAE banks will argue buyers should have known what they were getting themselves into when taking out a mortgage. But they might have reconsidered had they known banks were constantly pressuring the Central Bank to raise Eibor, leading to increased interest rates on mortgages.

Ultimately, the global banking sector is largely responsible for plunging the world into a recession. Lending irresponsibly to people that could barely afford to pay off loans when times were good, let alone during an economic downturn, has created a huge financial mess. So, in an attempt to drag themselves out of the mire, banks have increased the cost of borrowing and passed on the extra monetary burden to customers.

It’s a tactic that UAE banks have employed to protect themselves against non-performing loans. And it’s one they will continue using while times remain tough. What could be simpler than making customers pay for the banks’ mistakes? Nothing, which is why potential buyers should think twice before taking out mortgages in the UAE.

Rather than pay salary transfer charges, Emirates NBD customers should vote with their feet and bank elsewhere.

Do banks the world over generally treat their customers with such contempt or is this ‘privilege’ reserved for just UAE residents? In a move that will surely discourage people to stay with or join Emirates NBD, the bank is reportedly set to start fining customers if their salary transfers are delayed.

It’s understood that customers will be charged AED75 for any delay in transfer, with a quarterly fine of AED105 on Classic Accounts if no salary appears for three months. Meanwhile, Plus and Select account holders will receive an AED225 fine per quarter.

So, through no fault of their own, the bank’s customers could be fined if employers fail to transfer their monthly pay cheques on time (no monthly deadline has been clarified for when salaries must appear in people’s accounts). To add insult to injury, customers who receive salaries in cash and deposit the funds into their accounts could also be penalised.

It will be interesting to hear how the “biggest UAE bank by assets” justifies implementing such ridiculous charges. But it’s unlikely Emirates NBD will even bother offering an explanation for what many might consider a callous money-making scheme.

Looking at the timing, it doesn’t take a genius to work out that Emirates NBD is desperately trying to boost revenues after seeing shares fall to the lowest close in two years on January 31. This follows the bank’s recent decision to drop ratings agency Standard & Poor’s, possibly for fear of receiving a downgrade.

Like most banks in this region, Emirates NBD has been hit by the financial downturn. But penalising customers by introducing arbitrary fines is a shortsighted measure. With so many other banks operating in the UAE, people can simply vote with their feet and shift their money elsewhere. If this happens, then Emirates NBD chiefs will only have themselves to blame.

DUBAI INTERNATIONAL FINANCIAL CENTRE

Giving UAE banks government money after seeing them waste millions on bad loans would be foolhardy.

Hopes that the UAE will emerge from the economic slump this summer were further knocked yesterday when a top banking figure called for government aid.

Hussain al Qemzi, chief executive of Dubai-based Noor Islamic Bank, effectively urged the local banking industry to approach the government with cap in hand for a cash injection. He believes a Dh25 billion hand-out will revive lending to businesses and consumers from banks that set aside Dh13 billion to cushion against unpaid loans.

The timing couldn’t be much worse as concerns about the UAE’s economy and the strength of companies based at Dubai International Financial Centre continue to mount. Last year, banks were forced to constrain lending after major Gulf businesses, such as Dubai World and Saudi Saad/Al Gosaibi, ran into financial trouble. Elsewhere, the country’s short-term prospects are hardly inspiring, with the International Monetary Fund recently forecasting growth at near zero this year. Its previous projection for 2010 was 2.4 percent.

With little to no growth on the cards, it’s unlikely a UAE recovery will happen anytime soon. But giving local banks yet more money to fritter away is not the right course of action.

Since 2008, banks have spent Dh120bn to shore up finances amid a devastating global economic downturn. It’s just a shame these same institutions weren’t so cautious with lending when times were good.

During the boom years, UAE banks were falling over themselves to throw cash at people. None, it seemed, were concerned about a person’s credit history or monthly wage, leading to people with neither the means nor inclination to meet repayments securing huge sums of money. So, when the financial crisis kicked in, droves of customers with mounting debts inevitably skipped the country to avoid jail time. Bank chiefs have since been scratching their heads trying to figure out how to recoup the money.

One can only hope that UAE bank chiefs have learned their lesson from this sorry ordeal. But don’t be surprised if they find themselves in a similar pickle when the next recession rolls round.