Saturday, September 06, 2008

Banks overexposed to expanding Gulf property markets: HSBC

Being exposed to the overheated property market in the Gulf, the Banks such as the First Gulf in Abu Dhabi are in a vulnerable position, where funding conditions for financial firms are likely to deteriorate HSBC stated.

HSBC has reduced price targets on several major banks in the emirate, stating the financial sector would remain challenged by the lack of economic diversification in the country.

HSBC, in its note to the clients, stated that the high concentration of real estate and construction loans in the portfolio of banks is a matter of concern, although it is not an immediate threat.
Banks such as the First Gulf and National Bank of Abu Dhabi are the most exposed to any downturn in the property market.

HSBC has reduced its investor recommendation on First Gulf to neutral from overweight, with a price target of Dh.24.5, while also lowering its price target on National Bank of Abu Dhabi to Dh.19.9 from Dh.22.5.

Banks in the Gulf have considerably weakened during the recent weeks, based on the bourses in the region, on concern that a rapid expansion in the realty market, to which the Banks are exposed, may have gone too far.

For instance, the Abu Dhabi Commercial Bank has shed 24 percent this year so far, while the First Gulf Bank has gained about 10 percent. There is overheating in the real estate market in the region, but we do not notice any immediate threat to asset quality, the note stated.

HSBC has also lowered its price target on Union National Bank to Dh.11.0 from Dh.11.9, and from Dh.7.8 to Dh.6.4 on Abu Dhabi Commercial Bank.

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