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Under new International Financial Reporting Standards (IFRS) 9, all GCC banks compliant with the standards are required to break down investment portfolios into pre-defined stages. Accordingly, Stage 2 – referred to as underperforming, where credit risk has increased significantly since initial recognition – warns stakeholders to account for expected credit losses, especially since the classification could lead to business troubles later on. The next stage, Stage 3, is when a loan’s credit risk increases to the point that a loan is credit impaired, leading to possible deterioration of asset value.
Currently, the impact of IFRS 9 implementation has been “manageable” according to S&P Global’s most recent report. In its examination of the effects of the roll out of the new standards in the year since implementation, the ratings agency warned that the next 12-24 months could potentially have adverse effects on the asset quality of GCC banks if necessary steps are not taken. Loan impairments are likely to go up, which could result in asset value deterioration in the GCC. This makes it critical for banks to have access to transparent and accurate market data to correctly ascertain markers like Loan-to-Value (LTV) ratios and calculate risk to mitigate adverse outcomes.
Since 2015, Property Monitor has been a key strategic partner to leading banks and lending institutions in the UAE, providing real-time transparent, accurate data and tools specifically designed to deliver a complete view of market values to help identify relevant risk areas. By assessing underlying asset values and market trends correctly before loans are approved, lenders can identify mortgages with high probabilities of over-valuation when underwriting procedures begin. Maintaining current property value ranges and calculating Loan-to-Value (LTV) ratios to match market prices is particularly important, as it enables regular assessments of loan book values to mitigate any future losses.
According to S&P’s report, deterioration of asset value could particularly affect the UAE and Saudi Arabia. In the UAE the concentration of loans is relatively high – about AED 300 billion in real estate, according to a report in Gulf News, which accounts for approximately 20% of total loans – indicating that risks associated with real estate valuations and loan impairments could be expected over the next 12-24 months.
With continued downward pressure on the market, asset and credit quality could well be affected. Using data like that provided by Property Monitor to correctly assess and calculate LTV ratios and risks will be of critical importance as IFRS9 guidelines are implemented across the UAE and the wider GCC.
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Julian Roche
MA (Oxon), MPhil, PhD
Chief Economist
Julian joined Cavendish Maxwell as Chief Economist in January 2019. Coming from an old real estate family in Ireland, his career as an economist began with a first-class honours degree in philosophy, politics and economics at the age of 19, following which Julian was an analyst with the UK Government. He later helped develop and launch the UK’s residential forecasting service with the firms that merged to become Global Insight. Julian subsequently developed derivatives in the City of London and established real estate futures contracts for what is now the International Commodity Exchange. He also ran a property development and management firm, before eventually serving as an international consultant and trainer to governments, central banks and notable firms including AXA, Citibank, DBS, Deloitte and Thomson Reuters.
Julian fills his work-free time with academic pursuits; he holds several postgraduate degrees, including a PhD in International Risk Management Policy, and also the Licensed Conveyancer qualification. Julian has published many business and academic texts and articles, and is also a keen walker – especially fond of the Scottish Highlands.
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Sarah-Jane Carter
BA (Hons) DipM
Head of Marketing
Sarah-Jane joined Cavendish Maxwell in January 2020 as Head of Marketing and is responsible for the development of the marketing strategy and execution across the Middle East region. An energetic and results driven marketer, Sarah-Jane possesses a wealth of multi-channel marketing experience, within both B2B and B2C environments which she has gained over a 25 year career. Prior to joining Cavendish Maxwell, Sarah-Jane held senior marketing positions for major developers in Dubai including Emaar, Dubai Properties and Dubai Sports City. She also worked for IWG as the Regional Marketing Director responsible for the MEA and APAC regions. Before relocating to the UAE in 2005, Sarah-Jane held various management roles in public and private sector companies in the UK including ten years at Royal Mail and seven years at the Bank of America.
Sarah-Jane is a member of the Chartered Institute of Marketing and has a BA(Hons) Degree in Business and Marketing
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