Banks are bracing for an escalation in bad loans in the new year as defaults spread throughout the financial system and attention shifts from retail to corporate customers in the wake of the Dubai World debt restructuring.
Non-performing loans were once considered a minor issue that would work its way through the system in a matter of months, but most analysts now expect the volume of bad loans at banks to crest next year before gradually receding as they are written off.
“We expect non-performing loans to peak by mid-next year,” said Janany Vamadeva, a banking analyst at HC Securities in Dubai. “A non-performing loan takes six months to be reflected in the books, even after things improve. Even in corporate loans, asset quality is deteriorating.”
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