One of the UAE’s bigger banks has said that it would move away from unsecured lending to small and medium-sized enterprises (SMEs) in the wake of the SME debt crisis in the Gulf country.
According to CEO John Iossifidis, Dubai-based Noor Bank will move away from unsecured lending to SMEs after being impacted by a rise in bad debts within this sector.
The shift is part of a turnaround plan Iossifidis has been mapping out since joining the bank in April this year to bolster profits, a report in Reuters said.
“Unsecured lending to SMEs is not something we will do,” Iossifidis said . “The whole banking sector was doing unsecured lending to the SMEs, and that is why we (the sector) got into the problems.”
“We are not turning our back on that sector, but it’s certainly not going to be the unfettered lending that was happening two years ago in the banking sector.”
Banks in the Gulf has been impacted by dimming economic growth and an increase in bad loans, partly driven by the low oil prices, and as such, are moving to right size their lending operations.
Traditionally, in the UAE, lending to small businesses has been on an unsecured basis. However, since the second half of 2015, banks have found that this was not sound, as a wave of bad debts linked to the sluggish economy and a high dollar have hit their books.
Noor’s impairment charges jumped 122% in the three months to June 30 from the same period of last year, according to the bank’s latest financial results.
Noor is not alone in this. United Arab Bank also announced in 2016 that it had begun to wind down its small businesses lending unit.
Noor Bank would continue to look at ways to reduce costs, Iossifidis said. The bank’s profit in the three months to the end of June reached Dhs79.7 million ($21.7 million), down 76.9% from the same period of last year.