Retail banking faces pressure from slowing economy

Bankers say the worst is over for the sector and the skips are declining

Gulf News

Dubai: The economic slowdown following the prolonged decline oil prices is exerting pressure on retail banking business in the country and the growth rates this year and next are expected to reflect the current difficulties in the market.

“The slowing economy is a fact. It has impacted business growth of banks,” said AbdulAziz Al Ghurair, Chairman, UAE Banks Federation and CEO of Mashreq.

The latest UAE Central Bank data shows, total banking sector deposits fell for a third consecutive month in August, by 0.5 per cent month on month. This resulted in the yearly rate of deposit growth moderating to 3.3 per cent year on year, down from a recent high of 4.1 per cent in May.

Data showed a marginal improvement in credit growth in August. The July fall was largely attributed to seasonal factors such as the end of Ramadan and Eid. However analysts say the slowdown in economic activity continues to be reflected in a moderation in yearly credit growth. Credit growth

Deleveraging in the SME sector combined with job losses arising from restructurings have resulted in a year on year slowdown in credit growth. Private sector credit growth slowed to 6.9 per cent year on year in August, down from 8.5 per cent in December 2015. Within the private sector, personal credit growth has decelerated to 5.5 per cent year on year in August from 10.3 per cent in December 2015.

“Demand for a number of retail products has been slackening during the last 9 months. We expect the trend to continue for the next 6 to 12 months. As we budget for next year, as an industry, most banks could be cautiously optimistic about next year,” said Suvo Sarkar, Senior Executive Vice-President & Group Head — Retail Banking & Wealth Management at Emirates NBD.

The oil price, the geopolitical situation in the region all of that have an overhang effect on the country. “While we are seeing growth in some of the products, for example, payments. There is definitely slowdown in auto loans, personal loans and mortgage business where demand for loans has come down,” said Sarkar.

New reality

Wealth management is still growing because low penetration of insurance and investment products in the country, this segment is seeing a double digit growth.

Bankers in general feel that the worst is over for this segment. “The market has adjusted itself to the new reality. There were a few lenders who were adventurous on the lending side. I think that adventurism is largely curtailed. A lot of customers are in genuine difficulties in meeting obligations to their suppliers and to their banks and because that there was a bit of domino effect,” said Sarkar.

Bankers say last the 18 months have been one of the worst period for the UAE’s banking sector in terms of NPLs and slowdown in business. “It has been very different from the impact of global financial impact on the local banking sector. The recent troubles were largely localised and those who were impacted were largely loyal customers of banks for several years. It has been very stressful for both banks and customers. But things are settling down with the number of skips coming down. I think the worst is over,” Sarkar said.