UK lender Lloyds Banking Group expects conglomerate Dubai World's debt agreement to boost liquidity in the United Arab Emirates, but bank lending will remain constrained, a senior executive said. Richard Musty, managing director for Lloyds TSB Middle East, said a resolution on Dubai World was important for the region to demonstrate it can deal with its financial difficulties.
-- Dubai debt deal to free up liquidity in UAE
-- Lending to remain static, deposits at Lloyds seen higher
-- Would consider developing local Islamic finance
"Secondly, it will inject liquidity into the region through some of the businesses within it such as Nakheel and allow them to complete various projects, which has to be positive," Musty told Reuters in an interview on September 14.
Banks operating in the UAE were hit hard when a regional property bubble burst, forcing them to take provisions against bad loans. Many lenders, including Lloyds, tightened lending as a result.
"Loans are I would say pretty static, deposits are going up," Musty said.
Lloyds TSB sits on the informal co-ordinating committee that led restructuring talks between Dubai World and its creditors. Ninety nine percent of creditors have accepted a deal to restructure nearly $25 billion in debt.
Lloyds TSB's main branch in Dubai is located in Jumeirah, one of Dubai's most affluent beachside neighbourhoods and home to some of its most well-heeled Emirati and expatriate families. In 2009 it made a net profit of 96.1 million dirhams ($26.2 million) in the Middle East.
Lloyds and other UK banks have a heavy exposure to UAE's debt problems, stemming from their traditional links to the region, which contributed to a spike in bad debts.
"Impairments across the banking industry remains testing. My view is that they would stay reasonably static across the industry in 2010 and probably start to reduce in 2011," he said.
Musty said the bank is working on a number of initiatives to expand but declined to be more specific.
"Whilst we do not offer Islamic banking products at present if, in the future, our customers indicate that such a product will be beneficial to them, we would of course consider developing one," he said.
It already offers shariah-compliant services in the UK.
"The next months, the short term is going to be testing but put into a global context ... overall the federation (UAE) has strong oil and natural gas reserves so it seems to me the medium to long term is very positive," Musty said.