Gulf banks will face rising defaults and rescheduling of debt as the region's real estate slump hurts economies, experts and recent surveys said. About a third of bank loans in the region are made to the property industry, according to Moody's Investors Service Inc., which predicted last month banks may see loan defaults rise in the next nine months as a delayed impact of the global credit crisis hits. Dubai house prices fell an annual 35 percent in the first quarter, trailing only the Latvian capital Riga's 50 percent slump, according to a survey by Global Property Guide. Standard & Poor's on July 7 cut the ratings of four Dubai- based banks, citing the difficult macroeconomic and financing environment in the emirate. Kuwait's Global Investment House KSCC and Gulf Bank KSC have been among the worst hit in the region by the global financial crisis. Global Investment defaulted on most of its loan repayments in January, while Gulf Bank had losses from derivatives trading. Global Investment in December said it appointed HSBC Holdings Plc as an adviser. “There will be debt restructuring in the region, involving the majority of the banks,” Sankar Krishnan, managing director of Alvarez & Marsal LLC for the firm's Middle East unit said in an interview. “There are developers that are going to fail and banks will end up holding a lot of half-finished projects. Banks in the region are not sophisticated enough to deal with this situation.” Saad and Algosaibi groups, which have announced plans to restructure debt, have borrowed at least $15.7 billion from regional and international banks, according to documents provided by lenders. Companies in the region have for the first time hired global restructuring firms, Krishan said, adding that Alvarez & Marsal has had “discussions with several banks” on advisory mandates. Banks “have reached a point where people are openly talking about restructuring.” Dubai World, a holding company for the emirate's government, last month hired AlixPartners LLP, which is also advising General Motors Corp., to restructure its property business. Dubai's government asked investment bank N.M. Rothschild & Sons Ltd. to offer advice on managing a $20 billion fund that will support state-affiliated companies. Alvarez & Marsal is in the process of moving its real estate experts to the region, Krishan said. “There are certain family owned businesses that are in trouble. Any business which is heavily consumer-oriented is going through a tough period.”
