Sulaiman Al Mazroui (centre), the Union of Arab Banks board member in the UAE; Saeed Abdullah Al Hamiz (right), senior executive director of the banking supervision and examination department of the UAE Central Bank, and Wissam Fattouh, deputy secretary general of the Union of Arab Banks at its meeting in Dubai yesterday. Image Credit: Hadrian Hernandez/Gulf News

Dubai: Non-performing loans in the UAE are expected to increase up to 4.7 per cent this year, Saeed Abdullah Al Hamiz, senior executive director of the UAE Central Bank, said

Speaking to Gulf News on the sideline of a banking forum entitled ‘Transforming Challenges into Opportunities' organised by the Union of Arab Banks, Al Hamiz said: "The non-performing loans will go up between 4.5 and 4.7 per cent."

He, however, clarified that the increase is natural and expected in such economic situations.

"With the current econ-omic situation, this is quite normal," he said.

Al Hamiz said: "Banks operating in our country bene-fit nowadays from both a strong deposit and a strong capital base, which allows them to weather difficulties they may encounter due to the expected increase in bad debts."

Despite the slowdown in economic activity, total bank deposits increased 15.3 per cent from Dh838 billion at the end of June 2008 to Dh966 billion at the end of January 2010, he said.

Al Hamiz added that the banks' capital and reserves increased by Dh88 billion from September 2008 to January 2010, and their total capital and reserves is Dh251 billion as at the end of February 2010 which resulted in an exceptionally high capital adequacy ratio of 19.9 per cent at the end of 2009.

At the height of the econ-omic downturn, the UAE Central Bank supported the banking system by providing liquidity, he said.

"In February 2009, the Central Bank fully subscribed to the first tranche of a $10 billion bond issued by the Dubai Government.

"Furthermore, the Central Bank announced on November 29, 2009 that it stands behind UAE banks and branches of foreign banks operating in the UAE, making available to them a special additional liquidity facility linked to their current accounts at the Central Bank."

Wissam Fattouh, deputy secretary-general of the Union of Arab Banks, said that with strong economic foundations and extraordinary infrastructure, the Dubai economy will witness lower but more sustainable growth of 3-4 per cent.

Fattouh added that several studies forecast that trade, tourism and financial services in Dubai are expected to recover in 2010. But real estate will need more time to recover

Pointing to the financial achievements of the UAE, he said: "The UAE economy has witnessed supernormal growth during the last 15 years and jumped from $53 billion in 1995 to $123 billion in 2009, a more than 130 per cent increase.

"The UAE's GDP is expected to grow by 2.34 per cent in 2010."