Dubai debt 'not severe'

“As of Friday, after several Taiwanese banks filed in their estimates, we calculate that the size of Taiwanese banks' exposure to debts in Dubai stands at US$195 million,” said Hsiao Chang-jui, deputy chief of the Banking Bureau under the Cabinet-level Financial Supervisory Commission (FSC).

Taiwan's major lender Cathay Financial Holdings said its Cathay United Bank has a stake of US$28.55 million (NT$923 million), including US$10 million (NT$323 million) in direct lending to Dubai World Group Finance Ltd.

The bank also lent US$18.55 billion to two of Dubai World Group's affiliates — DP World Ltd. and Nakheel — by joining the international consortium loan programs.

In addition, Cathay United Bank has an exposure of US$3.5 million in lending to Dubai's state-owned bank, Emirates Bank International, which is assigned an A- rating by S&P credit rating agency.

The Cathay group stressed the credit lines to institutions in Dubai will not weaken the overall financial viability of Cathay United Bank.

Taishin Holdings has an exposure of US$15 million and Shin Kong Financial Holding Co. has US$5 million exposed, due to participation in offering international consortium loans, according to the FSC.

Both said the risk exposures will no affect their financial standings.

The FSC is still working with government-owned banks to determine if any state financial institutions have made any lendings to Dubai.

But officials said they do not expect serious financial impact on Taiwan banks and the overall financial conditions.

The reported financial difficulty at Dubai World has triggered massive sales of shares and steep drops in major stock markets.

The Taiwan bourse tumbled 3.2 percent with the banking sector sustaining the biggest drop among all categories after reports that Dubai World, burdened by US$59 billion of liabilities, sought to delay repayment on much of its debt.

But Hung Jui-ping, director of the Economic Research Department under the Cabinet-level Council for Economic Planning and Development, estimated that the impact of the unfolding Dubai debt crisis on the world financial market should be manageable.

Hung pointed out that the signs concerning the debt risks at Dubai World already emerged several months ago following the group's overextended investments.

But the credit default swap (CDS) in other emerging economies around the world has showed no significant increase while the International Monetary Fund just announced a boost of financial loans to US$600 billion from US$500 billion to nations dealt severely by international financial meltdown last year.

Based on the preliminary developments, the financial problem in Dubai is still under control and is unlikely to spread to other nations, according to Hung.

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