Business | Banking
Lenient loan policy of banks 'poses a threat'
High inflation and the possibility of defaults on the expanding personal and home loan portfolios of banks are key risks facing the UAE economy, the National Bank of Dubai said yesterday.
- By Arif Sharif, Staff Reporter
- Published: 00:00 October 26, 2006
- Report puts uae inflation between 12% and 15% in 2006.
- Image Credit: Gulf News
Dubai: High inflation and the possibility of defaults on the expanding personal and home loan portfolios of banks are key risks facing the UAE economy, the National Bank of Dubai said yesterday.
In a UAE Focus report, the country's fourth biggest bank by assets, estimated domestic inflation at between 12 and 15 per cent in 2006 and said it was the single largest risk to the UAE economy.
The possibility of defaults on personal and home loan repayments to banks was also a threat, it added.
Central Bank figures show personal loans in the UAE surged 64 per cent in 2005 to Dh97.7 billion and by a further 37 per cent in the first quarter of 2006 to Dh133.5 billion.
Personal loans as a percentage of total credit had risen to 27.7 per cent in 2005 from 24.1 per cent in 2004.
NBD said loans disbursed by several UAE banks were beyond healthy levels and it was worried about the lenient lending policies of many banks. "Given that at least some part of the wealth of the middle class could have been battered by the bearish equity market, the customer's ability to service such loans is a risk in the current inflationary environment," the report said. This could lead to asset quality problems in 2007-08.
NBD also said it also expected housing prices to decline in 2007-08.
"While many banks appear to be ignoring the implications of high lending to the housing sector, a period of rising mortgage payments, rising debt and falling home values could lead to asset quality problems if not monitored carefully."
UAE Central Bank governor Sultan Bin Nasser Al Suwaidi said in August inflation in the UAE was running at over eight per cent mainly due to rising residential rents.
Earlier this month, the International Monetary Fund estimated UAE inflation at 8.0 per cent in 2006 but forecast it to decline to 5.0 per cent in 2007.
See also Page 35
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