UAE lenders are setting aside money at a brisk rate to cushion themselves from bad loans, according to figures released yesterday by the Central Bank.
Overall provisioning, or the practice of retaining funds as protection against loan defaults that would otherwise have been booked as profits, grew by 11 per cent between May and last month, the data revealed. The rise, from Dh30.2 billion (US$8.2bn) to Dh33.5bn, was the quickest month-on-month increase in provisioning in the past year. Provisioning at the nation’s banks has increased 50 per cent since last August.
Such a spike in provisioning is common during recessions, analysts said yesterday. With more people losing their jobs and more companies falling on to hard times financially, banks were more likely to be hit by defaults from customers who could not pay back their loans, they said.
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