Dubai: With economic conditions still uncertain, demand for business financing, as well as personal loans, is on the rise in the UAE, but lenders are hesitant to extend credit, according to a new report.
In the latest Credit Sentiment Survey, the Central Bank found that nearly half (45 per cent) of financial institutions in the country saw an increase in demand for cash assistance from companies in March. At the same time, there is also a “robust appetite” for personal borrowing among residents in the UAE, particularly in Dubai.
However, banks are indicating unwillingness to lend some money to corporates and small businesses, as tight liquidity remains one of the biggest challenges.
“Results [from the survey] suggested that appetite for both business and personal credit improved [in March]. However, the ongoing tightening credit conditions for business loans suggested the reduced willingness to extend business loans among financial institutions, partially reflecting the negative impact of lower oil prices,” the Central Bank said in a report.
The survey results were based on the information collected from senior credit officers from all banks and financial institutions extending credit within the UAE. Respondents were asked questions about credit conditions in the first few months of the year.
According to the data supplied by the National Bank of Abu Dhabi, loans for personal purposes, including credit cards and car loans, amounted to Dh417 million during the last quarter of 2015, a 7 per cent jump from Dh390 million in the first quarter.
Central bank’s survey found that appetite for business credit improved further in March and was evident across all market segments and industries, but banks seem to be picky when it comes to granting loan requests.
According to the central bank, survey respondents indicated that lenders are tightening the credit standards when dealing with companies, as liquidity remains tight amid plunging oil prices.
“Despite the recovery in loan demand, survey results suggested a reduced willingness to extend business loans among financial institutions, with changes in credit standards suggesting a higher degree of risk aversion.”
“This was evident in the reported tightening of credit standards pertaining to all the terms and conditions. Survey respondents suggested that the lower oil prices had negative impacts on loan demands across different types of firms, with lenders tightening the credit standards in response to low oil price as well.”
As for lending to individuals, however, banks aren’t as strict. More than 85 per cent of lenders “reported no change in credit standards and no one observed tightening in credit standards in any category”.
“In aggregate, results reported marginal easing of credit standards in March,” the central bank said.
