Dubai debt excessive and irresponsible borrowing

Dubai debt excessive and irresponsible borrowing
14 June 2013

Dubai still an excessive risk due to huge debts - IMF

The possibility of another boom-and-bust cycle in debt-laden Dubai is a risk for the UAE economy in the medium term, according to the IMF.

Dubai’s total debt continues to be substantial at US$ 142 billion of which US$ 35 billion is in government and government-guaranteed debt. Dubai’s GREs increased their debt over the last year to an estimated US$ 93 billion, up from US$ 84 billion in March 2012, of which about US$ 60 billion falls due between 2013 and 2017. 

The UAE’s banks are strongly interconnected with GREs through ownership and financial linkages. The inter-connectedness coupled with non-transparent corporate governance structures and practices makes managing the evolution of interconnected leverage challenging, which could give rise to systemic risks.

Non-performing loans (bad loans) were 8.7% in 2012.

UAE personal loans increased by 17.4% in 2012

In a speech by H.E Abdul Aziz Al Ghurair, the Chairman of UAE Banks Federation, he referred to Central Bank data which indicates loans for personal consumption was up by 17.4% year on year by the end 2012.

A survey carried out by the National Family Status Observatory last year revealed that 59% of Emirati families in Abu Dhabi spend 24% of their monthly income servicing loans; 56% of those surveyed said that the main purpose of their loan was to finance consumer goods – cars, phones and the like. Al Ghurair  said: “These figures are clearly alarming and indicative of a lack of understanding and awareness of how to use retail financial products wisely.”

Private wealth in Gulf States rises 7% in year

Private wealth in the Gulf states has grown 7 per cent over the past year amid strong oil revenues and rebounding equity markets, but the region continues to show some of the world’s starkest wealth disparities, says Boston Consulting Group’s Global Wealth Report 2013.

On aggregate, the GCC’s private wealth has recovered to levels about 10 per cent higher than in 2007 with investable assets rising from US$ 2.04 trillion in 2011 to US$ 2.19 trillion in 2012, compared with about US$ 2 trillion in 2007. UAE saw the largest growth with private wealth rising by 19% since 2007 to US$ 428 billion last year.

Comments

  • Colin
    Colin
    2013-06-24T13:22:07

    UAE banks provided more than Dh 8 billion in personal loans during the first four months of 2013 according to Central Bank statistics. Total personal loans, which were around Dh 260.9 billion at the end of 2012, increased by 3.1% to nearly Dh 269bn at the end of April this year!

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Head of Behavioral Finance
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