Analysts from Egyptian investment bank EFG-Hermes made waves recently with a weighty report that suggested the debt held by Dubai’s government and government-related entities could be up to US$170bn, well above previous estimates. The bulk of this debt is owed by the array of emirate-controlled holding companies, property developers and investment firms that make up “Dubai Inc.” Some of the weaker members of this club have already had high-profile struggles repaying their debts.

The prospect of a potentially larger debt pile facing increasingly wobbly borrowers seems like bad news for local lenders. Indeed, listed banks in Dubai and—to a lesser extent—Abu Dhabi are valued at a discount to their neighbours. (In the chart, P/B is the price-to-book ratio and ROE is return on equity.)

Although a discount is warranted due to lower profitability and a weak economic outlook, EFG-Hermes nevertheless considers the UAE banking sector the “most attractively valued market in the region”. If investors truly are rediscovering an appetite for risky assets, there is no sterner test than Dubai bank shares.