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Banks (Finance)

European Banks Face Potential Billions in Losses After Dubai Crisis

Strategic Insights

— 2 min read

As Dubai World, the state's holding company, shocked creditors by asking to halt debt repayments, European banks are scrambling to quantify potential losses. Despite claims by lenders such as Deutsche Bank, Credit Suisse, Citigroup and Barclays that their exposure to Dubai World is limited or insignificant, industry analysts warn that a deterioration of economic conditions in the emirate could trigger billions in losses. European banks may have up to $40 billion of exposure to debt issued by Dubai state-owned entities, according to a Credit Suisse research note.

Key Takeaways:

  • European banks may have up to $40 billion of exposure to debt issued by Dubai state-owned entities, as estimated by Credit Suisse.
  • Dubai World accounts for about $60 billion of the city-state's $80 billion liabilities, with analysts estimating that half of this amount is held by European banks.
  • Credit Suisse estimates that European banks could face a 5% increase in bad loan provisions in 2010, or around €5 billion after tax, if they lost 50% on their estimated exposure to Dubai.
  • Standard Chartered, focused on emerging markets, may have the most exposure among UK banks, with 7% of its customer loan book in the United Arab Emirates.
  • HSBC has 2% of its loan book in the United Arab Emirates, while Barclays, RBS, and Lloyds have less than 1% of their loans in the emirates.
  • The global financial crisis has taken a toll on European banks, with Standard Chartered taking $460 million in impairment charges against Middle East loans in the first half of 2009, up from $80 million in the first half of 2008.
  • HSBC had impairment and other credit risk charges of $391 million in the region in the first half, nearly 10 times the $41 million recorded a year before.

Statistics:

  • Up to $40 billion: European banks' potential exposure to debt issued by Dubai state-owned entities, according to Credit Suisse.
  • 5%: Estimated increase in bad loan provisions for European banks in 2010, or around €5 billion after tax, if they lost 50% on their estimated exposure to Dubai, according to Credit Suisse.
  • 7%: Standard Chartered's exposure to the United Arab Emirates as a percentage of its customer loan book.
  • 2%: HSBC's exposure to the United Arab Emirates as a percentage of its loan book.
  • $460 million: Standard Chartered's impairment charges against Middle East loans in the first half of 2009, up from $80 million in the first half of 2008.
  • $391 million: HSBC's impairment and other credit risk charges in the region in the first half of 2009, nearly 10 times the $41 million recorded a year before.

Sources:

  • "Credit Suisse research note" (Credit Suisse)
  • "NCB Stockbrokers" (NCB Stockbrokers)
  • "Standard Chartered" (Standard Chartered)
  • "HSBC" (HSBC)
  • "Barclays" (Barclays)
  • "RBS" (Royal Bank of Scotland)
  • "Lloyds" (Lloyds Banking Group)

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