Dubai World's restructuring boost for UAE banks

Published: April 9, 2010

Report is positive for banks but warns of other burdens.

The proposed restructuring of an investment company backed by Dubai’s government is unlikely to have negative rating implications for UAE’s banks, according to ratings agency Moody’s.

Analyst John Tofarides estimates that although the plan has not been finalised, no more than US$10bn of UAE banks’ exposures relate to Dubai World’s proposed restructuring.

In March, the government announced it intends to repay all debt through extended tenor periods. This will be completed through two new debt issuances, maturing in five and eight years. 

However, the report warns that the adverse economic conditions are continuing to burden the country's banking system and could push some banks into negative territory.

Currently, of the 13 banks that Moody's rates in the UAE, four have a negative rating outlook and four are on review for possible downgrade. Rating pressures are more evident among Dubai-based banks than among their peers in Abu-Dhabi.

Tofarides concludes that the Dubai World situation is likely to make banks more cautious when lending to other government-related entities in the UAE.