Rising defaults, access to credit and the need for companies to review their business models remain major concerns despite talk of emerging positive sentiment in the economy. Michael van Uffelen, Executive Director of Arqaam Capital, expects to see more corporate defaults and the emergence of fresh fund-raising trends. The news that commercial banks have started to increase provisions for non-performing loans (NPLs) "probably is the best indicator of what is going to happen in the region", he told Emirates Business. "As banks start provisioning, it is very likely that we are going to see some corporate defaults occurring." He said that sentiment was more positive but was reluctant to describe the current situation as a recovery.
Not much has been heard about corporate defaults even though NPLs, which are at quite a high level, are expected to peak by 2010. What is the situation on the corporate front?
In the corporate sector, we have not seen a very high level of defaults, or they are not much publicised. This is partly because the way private business is transacted in the region is not as transparent as in other parts of the world. A lot has yet to come through. If we look at commercial banks, they have started to increase provisions for NPLs. That is probably the best indicator of what is going to happen in the region. As banks start provisioning it is very likely that we are going to see some corporate defaults occurring. We are in discussions with a lot of companies over restructuring, they have not defaulted but they are taking preemptive measures to make sure they do not default.
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