Cure for lending constipation needed

October 19, 2010

DUBAI/ Yes, the market for IPOs is opening up, investors are regaining confidence and the worst seems to be over, but challenges are still looming and there’s a dire need for a change in regulation. Or so suggested Shuaa Capitals’ chief Sameer al-Ansari.

“With the balance sheet of banks, whatever is keeping them constipated, we need to give them something to start. Banks have to be more comfortable and confident that there are no more shocks on the horizon,” said Ansari at the Reuters Middle East Investment Summit in Dubai on Tuesday.

The right provisions need to be made — and that means more acknowledgment of non-performing loans — in turn bringing adequacy ratios down, so that banks get a boost and start
lending again, Ansari noted.

“We need to open the tap a bit, even if its a drip,” the banking exec said, using hand gestures to illustrate his point. “We can’t have growth in the economy if its negative.”

Ansari, who’d made recommendations – simple to drastic – to decision makers in Dubai, suggesting solutions, cited the Irish example of gathering all bad debts linked to real estate and placing them in a government bank.

“It should be looked at here. If that’s what’s making the banks constipated, then lets do it!” he says.

Dubai, one of seven emirates that make-up the UAE federation, was hard hit by the global financial downturn and endured billions of dollars in projects cancellations, not to mention the $25 billion debt restructuring of Dubai World.

So is the worst over? Ansari opts for cautious optimism.

“We’ve seen the worst, been through the bottoming out process. I see growth coming back,” he said. “We’ll see a slow gradual recovery but the pace will be different in different places of the region.”

The region still boasts strong fundamentals, underpinned by strong oil prices which drive government spending, a young growing population, a developing consumer society with regional risk ratings that are far better than any of the other regions by several notches, he said.

All of this makes one wonder why the region is undervalued compared to the rest of the world, he said.

On anti-Dubai comments, Ansari said: “When people go through a Dubai bashing exercise, you have to remember Dubai isn’t sitting on the moon by itself.”

While Dubai and the UAE have greater challenges than the rest of the region, Dubai’s been going through a vicious circle that hit its main three economic pillars.

“If you look at Dubai, we’ve been through the impact of the global financial crisis, a severe regional real estate crisis and a major stock market crash,” he said. “There has been phenomenal wealth erosion.”

But the decline has finally been arrested and an upward trend is taking place.

“Recovery can only happen if these pillars bounce back. These three pillars are what will drive growth. I am cautiously optimistic that the vicious circle is beginning to come back up,” he said.

(Writing by Tamara Walid in Dubai)

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