UAE problem loans to rise, Moody’s warns

Moody’s has forecast that non-oil economic activity will boost the UAE’s real GDP growth next year. (Reuters)
Updated 09 October 2017

UAE problem loans to rise, Moody’s warns

LONDON: Problem loans in the UAE’s banking sector are set to rise by the end of 2018, ratings agency Moody’s Investors Service warned, blaming “sluggish” economic growth seen this year.
The agency has forecast that non-performing loans could reach 5.5 or 6 percent of total gross loans next year, an increase from the 5.3 percent recorded in June 2017.
This is at the higher end of the scale when compared to the UAE’s peers in the Gulf region where non-performing loans range between 1.6 and 6.3 percent, Moody’s said in a note issued on Monday.
While Moody’s has maintained its outlook for the country’s banking sector as “stable,” the agency said a high concentration of loans to government-related institutions and to the volatile real estate sector continues to pose risks to the quality of loans in the UAE.
It also warned of the level of exposure banks have to the construction and property sectors, industries that suffer from a higher-than-average historical delinquency level. This sector represented 19 percent of the banks’ loan books as of June 2017.
This increases to 25 percent of gross loans when personal loans for business purposes are included. Moody’s estimates that a proportion of these personal loans are likely to be used for some form of real-estate-related purpose.
The agency also forecasted that delinquencies among retail and small- to medium-sized businesses (SMEs) would increase, although overall corporate loan performance would remain “resilient.”
Household loan performance would weaken due to job losses and employment uncertainty constraining the repayment capacity of borrowers, Moody’s said.
However, the agency has forecast an economic rebound in 2018, which could help the banking sector weather any worsening of their loan books.
Moody’s has forecast that non-oil economic activity will boost the UAE’s real GDP growth to 3.2 percent next year, after a forecasted slowdown to 1.1 percent in 2017 and 3 percent in 2016.
Government spending in Dubai and economic activity in trade and financial services will help drive this growth, the report said, as will the construction of large infrastructure projects ahead of the 2020 World Expo in Dubai. The recovery in oil prices during 2017 will also support government spending.
This rebound will boost credit growth in the banking sector, which is forecast to rise by 5 percent in 2018 after a predicted lower growth rate of 2 percent in 2017, the agency said.
Capital levels will also remain “strong” over the next 12 to 18 months, which will provide a “substantial cushion” against softening loan performance, said Moody’s.
The agency expects the banking sector’s funding and liquidity to remain stable over the next 12-18 months. The sector remains primarily deposit-funded, with “moderate reliance” on market funding.
“Stabilizing oil prices and international bond issuances will continue to support funding and liquidity conditions in the country, following a tightening during 2016 amid oil price weakness,” said Mik Kabeya, an analyst at Moody’s.
Banks’ profitability is likely to remain strong, the agency said, with a net income of around 1.5 to 1.7 percent of tangible banking assets over the next 12 to 18 months.


A homegrown UAE brand bets on date’s heritage appeal

Updated 29 February 2020

A homegrown UAE brand bets on date’s heritage appeal

  • Dates are locally sourced by The Date Room from around 20 farms in the Al Ain oasis area of Abu Dhabi
  • UAE farms grow about 475,000 tons of dates a year, a significant percentage of which is exported

DUBAI: When you can answer the classic business question about a unique selling proposition (USP) in six different ways, you likely have a successful product on your hands.

Thankfully, when you are dealing with dates, unusual product features are not a problem.

There are more than 3,000 date varieties around the world, but Emirati brand The Date Room is approaching the sticky business of breaking into an established market with just half a dozen local cultivars.

From the buttery, caramel notes of the golden Kholas date to the lower-carbohydrate Razaiz type, their flavors offer a change from the more commonly available Medjool and Deglet Noor varieties.

Being locally sourced from about 20 farms in the Al-Ain oasis area of Abu Dhabi, they are also introducing UAE residents to the nation’s heritage.

“Emirati dates are unique because they’re generally much richer in taste and texture than others on the market — although they can be smaller in size,” said Tony N. Al-Saiegh, executive director of The Date Room.

The Date Room launched with two luxury boutiques in the UAE last November after founder Ahmed Mohamed bin Salem spotted a gap for local fruit in a market dominated by produce from Saudi farms.

While official market share by origin data is not available, Saudi dates may control close to 90 percent of the UAE’s retail market.

Yet, with an annual production of 755,000 tons, Saudi Arabia trails Egypt, Iran and Algeria, all of which produce in excess of a million tons each year, according to the UN Food and Agriculture Organization.

By contrast, UAE farms grow about 475,000 tons, a significant percentage of which is exported.

Dates are among the world’s oldest cultivated crops. The palm is native to the Middle East, North Africa and South Asia, with origins that go back more than 5,000 years to what is modern-day Iraq.

The appeal of dates has grown considerably in recent years. Their high fiber and mineral profile have led to their classification as a superfood, they have been used for their high natural sugar content in healthy natural alternatives to processed candy bars.

“The Date Room’s main initial motive was the fact that our own farms produce a superior quality of date in every way,” Al-Saiegh said.

“Our families have been enjoying these dates with every meal and occasion for generations, so why not introduce it to the market in a way that makes them available to everyone but also promotes the unique culture of the UAE?”

The company’s annual production runs to about 160 tons.

For now, distribution is restricted to the UAE, but Al-Saiegh says his team is in talks with distributors in India and Indonesia.

With farmers everywhere agonizing over the impact of climate change, what are the challenges facing date farmers, accustomed as their crops are to heat and aridity?

Scientists expect 2019 to be the second-hottest year on record after 2016, and they forecast that by 2070, today’s major producers will suffer from a markedly unsuitable climate.

Despite palm trees being able to tolerate the heat for hundreds of years, Al-Saiegh says his farms are already feeling the impact.

“As the weather gets hotter and the summers get longer, it’s drying out farms and (arable) land. This means more water is required because a lack of water affects the size and texture of the fruit,” he explains.

While the full impact of those changes is some years away, the Abu Dhabi government has focused on conserving the UNESCO World Heritage oasis where the UAE’s dates are grown.

On the other hand, given the way technology has transformed the local agricultural sector with solutions such as vertical, indoor and soilless farms, Al-Saiegh may soon be able to add another distinguishing feature to The Date Room’s USP.

• This report is being published by Arab News as a partner of the Middle East Exchange, which was launched by the Mohammed bin Rashid Al Maktoum Global Initiatives and the Bill and Melinda Gates Foundation to reflect the vision of the UAE prime minister and ruler of Dubai to explore the possibility of changing the status of the Arab region.