Mashreq Bank expects its retail non-performing loans (NPLs) to improve in 2011 after bad loans peaked last year, the head of Dubai lender's retail bank said on Tuesday.

While the overall retail banking sector may continue to face challenges in 2011, Mashreq's non-performing loans ratio is set to improve, Douglas Beckett told reporters at an event to launch a new loyalty rewards programme in Dubai.

'The retail banking sector will remain extremely difficult,' said Beckett, adding that some signs of improvement, such as increased credit card spending, were visible.

'NPLs are seriously improving. We saw some stabilisation in 2010 and as we move into the second quarter of 2011, we're seeing a steady and sustainable improvement in our non-performing ratios.'

Beckett added that NPLs had peaked in the retail sector of the bank. 'We saw the peak in 2010. And in 2011, I think the position will be an improvement.”

The regional banking sector was badly hit by the onset of the global financial crisis at the end of 2008, with lenders in the UAE hit by the country's battered real estate sector and loose lending policies.

The result was tightening lending conditions and rising provisions for bad and doubtful debts, all of which dented profitability.

Mashreq, which swung to a profit in 2010, said that provisions for bad loans fell 16 per cent to Dh1.76 billion at the end of the year.

The privately-owned lender is one of a number of financial institutions in Dubai believed to be heavily exposed to a number of indebted state-linked entities including Dubai World and Dubai Group, a unit of Dubai Holding.

Mashreq's new offering, launched on Tuesday, forms part of the bank's efforts to retain customers through a personalised rewards scheme.

'Today, success of retail banking will be retaining, developing primary relationships with existing customers,' Beckett said. – Reuters