Indicators of collapse surround the UAE economy
Signs of a massive collapse are besetting the economy of the United Arab Emirates amid a crisis of property, banking, and major airlines as well as the country’s main stock market.
Moody’s said that the weakness of the construction and real estate sector in the UAE would affect bank lending to individuals and companies.
Moody’s said that its concern is over the rise in loan losses was due to a drop in cash flows due to rising interest rates as well as damage to the real estate sector.
The recession in this sector is expected to impact borrowers’ commitment to repay their loan repayments over a period of 12 months to 18 months.
Moody’s pointed out that there is a rise in loans to the real estate sector during the period of decline in demand, which led to an increase in supply.
Housing prices in Dubai have been falling since 2014, driven by increased supply and weak demand, prompting construction and engineering firms to cut jobs and suspend expansion plans.
Lending to the real estate sector increased to 20% of total lending by the end of 2018, up from 16% in 2015.
“This rapid expansion in lending deepens the indebtedness of the construction and real estate sector, which is further exacerbated by a potential rise in financing costs or a shortage of liquidity,” Moody’s said.
Banks generally have tools to hedge against the risks that may result from loan losses, Moody’s said.
In the meantime, Emirates Airline announced a loss for the third consecutive year in 2018, blaming the challenging market conditions and fuel price increases.
Net loss fell to $ 1.28 billion last year, from $ 1.52 billion in 2017, the Abu Dhabi-based firm said.
The company’s total revenue last year fell 2.4% to $5.86 billion, down from $6 billion a year earlier.
The airline quoted 17.8 million passengers last year, down from 18.6 million in 2017.
The company also finished last year with a total of 106 aircraft, compared to 115 in 2017, despite receiving eight new aircraft last year.
In its statement today, it said that in 2018 it had stopped flights to cities such as; Tehran, Jaipur (India), Entebbe (Uganda), Dallas, Fort Worth, Dhaka, Dar es Salaam and Edinburgh.
Emirates Airline lost $ 1.87 billion in 2016 due to a decline in its assets and a weak return on its investment in Alitalia and Air Berlin.
Abu Dhabi’s stock market posted the worst performance in the world so far in March, where its main index posted its longest-ever losing streak, after falling 0.9% on Wednesday for its tenth consecutive day of decline.
Abu Dhabi’s main stock index fell yesterday, posting its longest losing streak ever, after falling for a tenth session as Abu Dhabi’s first-listed lender, Abu Dhabi First Bank, faced pressure from its most attractive rivals.
Since the beginning of the month, Abu Dhabi’s index has fallen 6.2%, making it the world’s worst performer among Bloomberg’s main stock indexes.
Abu Dhabi First Bank, FAB, is 43% of the index, and the managing director and head of equity research at Arqaam Capital Limited, which has the only selling recommendation for this share among Bloomberg analysts Jaap Mayer, “Will be under greater pressure” as investors may start shifting to other stocks, such as Abu Dhabi Commercial Bank (ADCB), which is currently trading at a 30% discount on Abu Dhabi First.
Meyer explained that the reason for the recent decline of Abu Dhabi shares is partly due to “somewhat weak growth.”
If Abu Dhabi First Bank makes its decision to increase foreign ownership to 40% from the current 25% in the first ten days of April, it may attract “inflows of about $1 billion in May and June, To Mayer’s expectations, as his weight in the index will increase by MSCI and the FTSE Russell, as the stock is currently listed.
