Lloyds cuts back on UAE mortgages

Bloomberg:

Lloyds TSB Group Plc, the London-based bank that entered the U.A.E. market in 1977, stopped offering mortgage loans for apartments in Dubai and reduced the amount it will lend to 50 percent of the price of a villa from 80 percent, it said in a statement today. HSBC Holdings Plc, Europe's largest bank, will require customers in the emirate to earn at least 20,000 dirhams ($5,445) to get a personal loan, HSBC spokeswoman Andrea Jaishankar said in an interview.

The lending restrictions come after house prices in Dubai quadrupled in the last five years, fueling concerns that a slump is imminent. The government said this week it has set up a committee to restore confidence in the real estate market.

Emaar Properties PJSC, the Middle East's biggest publicly traded developer, dropped to the lowest in four years, and the Dubai Financial Market General Index fell 7.3 percent today.
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Abu Dhabi won't allow Dubai's state- owned companies default on debt payments as the global banking crisis limits their access to funds, Abu Dhabi Commercial Bank Chief Executive Officer Eirvin Knox said.

``Dubai and Abu Dhabi are interdependent and one can't be isolated from the other,'' said Knox, who presides over Abu Dhabi's second-largest lender by assets.
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``The leadership of Abu Dhabi recognize the federation and believe in it, and that involves all of the emirates,'' Knox said.

Default Swaps

The cost of protecting against a default by Dubai Holding Commercial Operations Group LLC, the emirate ruler's investment company, increased more than fivefold between July and October, according to traders in credit default swaps. The five-year contracts were priced at 900 basis points today, soaring from 241 in July, according to CMA Datavision.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. An increase indicates a deterioration in the perception of credit quality.

Dubai Holding's 6 percent bond due in 2017 has declined 28 percent since Oct. 1, raising the yield to 14.1 percent.

``Dubai's spreads are far greater than risk assessment warrants,'' said Knox. ``I don't think there's going to be a default among a Dubai government entity.''