UAE banks streamline lending activities

Dubai: A number of banks operating in the UAE have quietly initiated measures to streamline their lending operations, at the same time aggressively pursuing measures to augment their deposit base, Gulf News has learnt.

While tight liquidity and rising interbank rates remain one of the reasons behind the move, bankers and analysts admit that banks are increasingly concerned about the asset quality in the context of rising threat of retrenchments, business failures and falling prices of shares and real estate.

Damac Properties admitted earlier this week that it has retrenched 200 employees. There are talks of largescale retrenchment in construction, real estate, oil and gas and financial services sectors.

A Sharjah-based petroleum company that hired 300 engineers for a new project is now reconsidering the project in the context of falling oil prices.

An Islamic bank that has been hiring aggressively in the recent months has suddenly stopped all recruitment.

"Our market intelligence indicates that several companies are rethinking or scaling down their expansion projects, resulting in job losses that could seriously compromise our asset quality," said the retail banking head of a local bank.

Any large scale retrenchment could mean a steep rise in the non-performing assets of banks. There are talks in the banking circles that expatriate professionals are using loans as hedge against potential job losses.

According to estimates, expatriates working in the UAE remitted more than Dh4 billion during the last two months, taking advantage of a favourable exchange rate and interest rate arbitrage from the rising dollar. Most of this money came from personal loans.

A number of banking industry sources confirmed to Gulf News that there has been a big surge in demand for personal loans during the last quarter. But most banks are forced to restrict lending as they fear future defaults.

Emirates NBD has raised its minimum salary requirement from Dh3,000 to Dh5,000 while it has substantially reduced the loan multiples for personal loans across the board. In vehicle finance and mortgages banks are now demanding down payments in the range of 20 to 50 per cent.

Lloyds TSB has stopped loans for purchase of apartments while it dropped its loan to value ratio on villas in the UAE to 50 per cent.

"Due to exceptional global market conditions, Lloyds TSB Middle East has altered some aspects of its mortgage product offering. Lloyds TSB is not currently lending to customers who wish to purchase apartments," the bank said in a statement.

In the beginning of last month, the bank was lending a maximum of 80 per cent against villas and 70 per cent against apartments in the UAE.

Earlier this week, HSBC doubled its minimum salary requirement for a personal loan from Dh10,000 to Dh20,000.

"The bank reviews its credit eligibility criteria from time to time in order to ensure that our products and services are sustainable for the bank and the customer. Our new credit eligibility criteria will ensure that customers receive loans that they can afford to repay at a time of considerable uncertainty around the world," HSBC said in an e-mailed statement.

Funding squeeze

While the global credit crunch almost shut local banks' access to the international bond markets, outflow of from the banking system as the dirham lost its speculative charm precipitated a major funding squeeze leading to significant pressure on lending.

Although the UAE government has committed Dh120 billion in liquidity to the banking system ease the liquidity situation, the banks are clearly sceptical about the future of asset prices.

Have you applied for a personal load? Have you been refused? What were the reasons given?

How can people apply for a loan when their salaries stay the same?
Laura
dubai,UAE
Posted: November 12, 2008, 17:03

This came as a surprise. A while ago, many of the banks did not have these rules.
Pramod
Dubai,UAE
Posted: November 12, 2008, 16:37