Dubai, September 25: The United Arab Emirates’ ability to support its banking sector has lessened during the global financial crisis, said Fitch Ratings, which downgraded seven local financial institutions on Thursday.
Hit by a property downturn and the financial crisis, the UAE’s economic boom came to an abrupt end last year after several years of windfall oil revenue.
The trade and tourism hub of Dubai saw debt levels rise as it became more costly to service debt amid the credit crunch.
Fitch estimates that the Dubai government’s debt will have tripled to $30 billion by the end of 2009, close to 40 percent of the emirate’s gross domestic product.
The rise in debt, the lack of financial resources will make it harder for the authorities to provide support for the UAE banks, Fitch said.
‘The ability, as reflected by the creditworthiness of the UAE federal authorities and the Emirate of Dubai to provide support, has weakened,’ Fitch said.
The banking sector this year saw a rise in non-performing loans, dampening profits. The UAE government and central bank have already taken a number of steps to help the country’s banks weather the financial crisis.
In October, the finance ministry poured $6.8 billion into bank deposits, the first tranche of a $19.1-billion rescue facility and the central bank guaranteed bank deposits.
In November, the ministry deposited another $6.8 billion into banks. In February, Dubai launched a $20 billion bond programme and sold the first $10 billion tranche to the UAE central bank. The move came shortly after Abu Dhabi government said it plans to inject $4.4 billion to recapitalise five of its banks.
Fitch downgraded the long-term issuer default ratings of Bank of Sharjah, Commercial Bank of Dubai, Dubai Bank, Emirates Bank International, Mashreqbank, National Bank of Ras Al-Khaimah and Islamic mortgage lender Tamweel.
–Agencies–