The UAE sentiment is seen negative and banks are likely to be hit after Royal Bank of Scotland and two other banks abandoned talks on restructuring Dubai Group's $10 billion debt and threatened legal action, said experts on Tuesday.

The locally-listed banks like Emirates NBD and Abu Dhabi Commercial Bank are said to have significant exposure to this debt.

'This is not good for the local banks especially because most haven't provisioned for Dubai Group's debt exposure,' remarked Ali Adou, portfolio manager at The National Investor.

'These banks already don't have coverage ratio. Most banks have been waiting for the restructuring to go through, to take it from the books as non-performing loans,' he pointed out.

In Saudi Arabia, Banque Saudi Fransi reported a 2-per cent decline in quarterly profits on Monday, missing forecasts, due to higher operational costs.

'The miss is mainly due to provisioning. The loan growth has been fast and they are being conservative. Banks have learned during the crisis to have enough provisioning on the balance sheet in case there are contingent risks,' Adou said.

On Monday, Saudi Arabia shares slid following protests in its oil-producing east.

A downbeat global cue may also weigh on Gulf sentiment. Asian shares eased on Tuesday after Chinese import growth slowed sharply in June, adding to concerns about deteriorating global economic conditions.-Reuters