MOODY'S: OUTLOOK FOR UAE BANKS REMAINS NEGATIVE

From Abdul Muin Majid

DUBAI, June 15 (Bernama) -- Moody's Investors Service says the outlook on
the United Arab Emirates' (UAE) banking system remains negative as a result of
the country's weak operating environment and the significant challenges facing
the emirate of Dubai in particular.

The negative outlook expresses the rating agency's expectations for the
fundamental credit conditions in the UAE banking system over the next 12 to 18
months, according to Moody's new Banking System outlook on the Gulf nation.

Moody's Middle East analyst and lead author of the report, John Tofarides
said UAE banks faced significant asset quality problems in 2009 but their
capital levels and good core profitability had allowed them to absorb losses
without significantly undermining their creditworthiness.

Moody's said although systemic support provided by the UAE's federal
government had eased, the banks' financial challenges, asset quality pressures
stemming primarily from Dubai would continue to weigh negatively on the rating
agency's outlook for UAE banks.

"Overall, the operating environment remains difficult, with low economic
growth and investment, weak demand for loans as well as investor confidence
issues which are curtailing the banks' ability to access low-cost, wholesale
funding," Tofarides said.

Moody's believed the over-supply of properties, particularly in Dubai, was
not conducive to a quick economic recovery nor to an improvement in the
operating environment that would allow for easing of pressures on the banking
sector in the near-term.

The agency said it would take time before considerable excess supply in the
real estate market could be absorbed by growth in demand and for the virtuous
circle of improved cash flows, wealth creation and rising collateral values to
resume.

"Until issues in the real estate markets are resolved, Moody's expects
investors concerns to remain and, as a result, continue to weigh negatively on
the cost of market funding for UAE banks," it said.
-- BERNAMA