Gulf Banks Defaults to Rise, Alvarez & Marsal Says

Gulf Arab banks will face rising defaults and rescheduling of debt as the region’s real-estate slump hurts economies, according to Alvarez & Marsal LLC, the firm that is restructuring Lehman Brothers Holdings Inc.

“There will be debt restructuring in the region, involving the majority of the banks,” Sankar Krishnan, managing director for the firm’s Middle East unit, said in an interview in Dubai yesterday. “There are developers that are going to fail and banks will end up holding a lot of half-finished projects. Banks in the region are not sophisticated enough to deal with this situation.”

About a third of bank loans in the region are made to the property industry, according to Moody’s Investors Service Inc., which predicted last month banks may see loan defaults rise in the next nine months as a delayed impact of the global credit crisis hits. Dubai house prices fell an annual 35 percent in the first quarter, trailing only the Latvian capital Riga’s 50 percent slump, according to a survey by Global Property Guide.