UK banks likely to avoid big Dubai loss

Optimism has grown this week that Dubai World is nearing a deal with creditors of its $26 billion (17.2 billion pounds) debt that will see full repayment or only a small "haircut" on loans, compared to a 40 percent loss rumoured last year.

Yet recent results from UK banks show they have already taken a bloody nose from the region's crisis.

Expatriates fleeing the country with debts unpaid, losses on property and corporate loans and rising unemployment have all contributed to a spike in bad debts.

UK banks have a hefty exposure to problems in the UAE, stemming from Britain's traditional links to the region, the emerging markets focus of two big banks, and lending during the Dubai property boom.

HSBC , Europe's biggest bank, swung to a $3 million loss in the UAE last year after an $861 million profit in 2008.

Standard Chartered's bad loans in the Middle East and other South Asia region was $811 million last year from $185 million in 2008.

Barclays' retail and commercial bad debts in the UAE and India jumped by 255 million pounds last year, while Lloyds' bad debts in the Middle East and Latin America hit 69 million pounds from almost nothing and RBS cited weak real estate and construction in the region.

"This is what happens, impairments in emerging markets fall very low for three, four or five years and then you get a couple of big bangs because you are overexposed. But then it can fall away pretty quickly back to low levels," said Simon Maughan, analyst at MF Global in London.

Last year's jump was stark compared to low impairments in the previous few years, and bad debts should have peaked, analysts said, with the proviso that Dubai World could provide a sting in the tail.