Dubai: Lending by the UAE's biggest banks is falling short of industry estimates as slower growth in the second-largest Arab economy damps credit demand.
Combined lending by the top seven banks climbed 0.6 per cent in the first quarter to Dh749.5 billion ($204 billion), their earnings statements show. Morgan Stanley and Cairo-based EFG-Hermes Holding both forecast a 5 per cent increase in loan growth in 2012.
UAE economic growth will decelerate to 3 per cent this year from 4.9 per cent in 2011 as oil output growth eases, according to the average forecasts of 12 analysts compiled by Bloomberg.
That would be the slowest growth rate in the six-nation Gulf Cooperation Council and is below average forecasts for the Middle East, Latin America, Asia and the BRICS group of emerging markets, the forecasts show.
A 29 per cent drop in lending rates last year has squeezed the margins the nation's top-four banks get from interest on loans.
"It's definitely a slow start, so I think our full-year targets look a bit optimistic for some banks," Shabbir Malik, a Dubai-based analyst at EFG-Hermes, said yesterday.
"Credit appetite continues to be weak."
Rates decline
The three-month Emirates Interbank Offered Rate, a benchmark used by UAE banks to guide loan pricing and deposit rates, tumbled 62 basis points in 2011 to 1.52 per cent at the end of December.
It rose to 1.53625 per cent yesterday, the highest in the GCC. Equivalent rates were 0.9025 per cent in Saudi Arabia, 1.26429 per cent in Qatar and 0.725 per cent in Bahrain yesterday.
UAE interbank rates were kept high by the nation's banks until last year as they sought to attract deposits after the banking sector's loan-to-deposit ratio rose above 100 per cent. That ratio fell to 97 per cent in February, Central Bank data show.
Combined customer deposits at the top seven banks rose 8.4 per cent in the first quarter to Dh790.4 billion, led mainly by a jump in government deposits at National Bank of Abu Dhabi, the second-biggest UAE lender, according to the banks' results. That compares with growth of 1.9 per cent in 2011, central bank data shows.
"In the first quarter, deposit growth was quite healthy, higher than lending growth which is positive for the sector," Timucin Engin, a Dubai-based associate director at Standard & Poor's said on May 7.
"There would be corporate demand for loans, but banks aren't necessarily risk takers in this market and still taking a conservative stance."
Three of the UAE's top-seven banks — Abu Dhabi Commercial Bank, First Gulf Bank and Mashreqbank — reported a decline in lending in the first quarter from December, while National Bank of Abu Dhabi said lending advanced 2.3 per cent, the fastest in the group. Emirates NBD, the biggest bank, reported a 0.5 per cent gain.
Slump in 2008
Bank lending grew more than 30 per cent annually in the four years to 2008 before slumping as the global credit crisis led to a crash in property prices and spurred loan defaults.
Lending climbed 3.9 per cent last year, after growth of 1.3 per cent in 2010, amid a rebound in trade, tourism and transport. "We had expected higher loan growth from First Gulf Bank, and some of the big banks in Abu Dhabi may have as much as 10 per cent" loan growth in 2012, Dan Cowen, a Dubai-based analyst at Morgan Stanley said in an interview on May 2.
Last month, the UAE Central Bank unveiled new loan limits designed to curtail banks' exposure to the government.
Banks can lend no more than 100 per cent of their regulatory capital to local governments and the same to government-related companies, the Central Bank said on April 4, setting a September 30 deadline for compliance.
Emirates NBD's exposure to sovereign and quasi-sovereign clients is 192 per cent of regulatory capital, while that of National Bank of Abu Dhabi is 199 per cent, Deutsche Bank AG estimates showed last month.
