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UAE credit demand begins to stabilise from second quarter

Lending standards expected to ease further from third quarter

Gulf News

Dubai: Demand for credit in the UAE appeared to have stabilised following the recovery registered in the previous quarter, according to the second quarter credit sentiment survey of the Central Bank of UAE.

The collects information from senior credit officers from all banks and financial institutions extending credit within the UAE. The information collected constitutes qualitative responses to a series of questions relating to credit conditions in the most recent quarter and expectations for the upcoming quarter.

Results from the June quarter survey suggested that most of the survey respondents reported no change in credit standards for both business and personal loans. Overall, results from the survey suggest that credit conditions within the UAE remain healthy with near term expectation of a continuation of such trends.

Business credit

According to survey respondents, demand for business credit has increased moderately in the June quarter. By loan type, increase in demand for loans were most evident among conventional loans and large firms.

Results from the survey revealed that demand for business loans has stabilised in the past two quarters. A modest increase in demand for business loans was observed with a net balance measure of +7.5, similar to the previous quarter. According to the survey results, +21.9 per cent of respondents reported a decrease in demand, +36.6 per cent reported an increase in demand, and +41.1 per cent reported no change. By emirates, the survey respondents reported a slight increase in appetite for business loans across the board.

Consequently, in aggregate, positive net balance measures were reported, suggesting a moderate tightening of credit standards during the June quarter. For the September quarter, survey respondents expected the demand for business loans to increase moderately, and credit standards would remain largely unchanged.

In terms of credit standards, more than 50 per cent of survey respondents reported no changes across all terms and conditions, while around 30 per cent respondents reported modest tightening. Consequently, in aggregate positive net balance measures were observed, suggesting a modest tightening of credit standards during the June quarter. The survey respondents reported a higher level of tightening for SMEs relative to Large Firms. In the quarter ahead, survey respondents expected continuous tightening in credit.

Terms and conditions pertaining to maximum size of credit lines and spread over cost of funds tightened as well but to a lesser extent. In the September quarter, survey respondents expected it to tighten across all terms and conditions, but to a lesser extent than the June quarter did.

Personal loans

The survey data showed that demand for personal loan in aggregate also slightly increased in the June quarter but to a lesser extent than the previous quarter. For the September quarter, survey respondents showed an optimistic stance and suggested an increase in demand.

The marginal increase in personal loan demand was mainly attributable to the strengthening in demand in Dubai, and Northern Emirates. On the other hand, the demand for loans for Abu Dhabi decreased marginally.

In terms of the September quarter, outlook for personal lending, survey respondents reported a net balance measure of +11.7. In aggregate, survey respondents showed an optimistic stance and expected the demand to increase in the September quarter. By emirate, survey respondents expected an increase in demand for loans across the board.

Echoing findings in credit standards, most of respondents reported no change with respect to specific terms and conditions. In aggregate, there is a moderate tightening in credit standards that occurred most with respect to collateralization requirements and premiums charged on riskier loans.

In terms of credit availability, more than 80 per cent of survey respondents reported credit standards unchanged across all the categories, though, in aggregate, a marginal easing of credit standards was observed. Nonetheless. With respect to expectations in the September quarter, most of the survey respondents expected the credit standards to remain unchanged.

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