Data points to slower private sector credit growth
Liquidity conditions are expected to ease further this year
Dubai: Private sector credit growth in the UAE strengthened in December, led by improvements in loans to corporate sector with a 1.2 per cent month on month growth as retail loan growth remained flat according to latest data from Central Bank of UAE.
The overall dynamics of the private loan sector in 2016 reflected a softening in economic activity and credit demand with loan growth decelerating to 5.6 per cent year on year in December 2016 compared to 8.5 per cent in December. The softening in personal credit growth was more pronounced, slowing to 5.3 per cent in December from 10.3 per cent in December 2015.
Uncertainties around job cuts and wage growth were likely factors behind this trend. “We expect to see system-wide credit growth remaining at around 6 per cent in 2017. Private sector credit growth could see some uptick with increased investment activity in 2017 led by Dubai though government demand for credit could fall with the higher expected oil revenue,” said Monica Malik, Chief Economist of Abu Dhabi Commercial Bank.
In the last month of 2016 total loans fell by -0.1 per cent resulting in annual growth of 6 per cent. A moderate fall in total loans in December seems to be a seasonal effect, with similar trends seen in 2014 and 2015. The month witnessed decline in borrowings by both government related entities (GREs) by 1.8 per cent and government borrowings by 1.1 per cent respectively.
Deposit growth
December saw robust deposit growth of 2.7 per cent month on month, building on the momentum of 1.2 per cent improvement in seen in November. The rise was the strongest monthly increase since March 2012 and resulted in the annual growth rate accelerating to 6.2 per cent year on year from 4.9 per cent in November.
Domestic deposits saw a stronger absolute increase of Dh25.9 billion, up 1.9 per cent in December month on month and 4.9 per cent year on year. Most domestic segments, including both public and private deposits realised a monthly increase, with only GRE deposits seeing a fall.
“GRE deposits ended the year down 11.8 per cent year on year after contracting -6.6 per cent month on month in December. The rise in government deposits, at 7.5 per cent month on, was particularly notable and may have been supported by the higher oil price in the month,” said Shailesh Jha, an economist at ADCB.
The government became a net depositor in the banking sector in December by Dh14.3 billion, having been a net borrower in the previous three months. Meanwhile, non-resident deposits rose by Dh15.8 billion, up 8.6 per cent month on month and 16 per cent year on year. Non-resident deposits rose to 12.7 per cent of total banking sector deposits in December from 11.7 per cent in December 2015.
The UAE’s gross loan-to-deposit ratio moderated to 100.7 per cent in December from 103.6 per cent in November on the back of the strong monthly deposit growth, pointing to an easing in banking sector liquidity conditions.
“Banks have tended to raise deposits at year-end (and quarter-end), though some of these deposits could be shed in the first quarter of 017, as was the case in early 2016. Nevertheless, with a higher average oil price forecast for 2017 versus 2016, there could be less liquidity-tightening pressure than in 2015 and 2016. Strong expected foreign borrowing (sovereigns and corporates) will also be critical to limit any upside pressure in the wider GCC region,” said Malik.
