Improving loan demand to fuel UAE credit growth in fourth quarter
Personal loan recovery seen as credit standards ease and fees and charges tighten
Dubai: Credit growth in the UAE is set to pick up the fourth quarter on the back of improved business and personal loan demand, the latest credit sentiment survey from the Central Bank of the UAE said.
The survey forecast a recovery in demand for personal loans as aggregate credit standards ease further, with the outlooks for interest rates, as well as financial and housing markets seen as key factors driving the comeback.
The bullish sentiment comes on the back of third-quarter data that showed growth in demand for business loans even as personal loans drew back into negative territory after a solid second quarter.
The central bank’s credit sentiment survey is a quarterly publication which collects information from senior credit officers from all banks and financial institutions extending credit in 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.
Third-quarter data on corporates and small businesses revealed an increase in demand for business loans across the board. By loan type, the increase was most significant among large firms and local firms.
In terms of credit standards, the survey results showed a tightening during the third quarter, while in terms of outlook, respondents anticipated a further tightening in credit standards and across all terms and conditions.
By emirate, survey respondents reported an increase in demand across the board, most significantly in Dubai and Abu Dhabi. With respect to expectations for the next quarter, survey respondents expect the demand for business loans to increase further among all categories — especially for large firms, small and medium-sized enterprises (SMEs) and other local firms.
Third-quarter data showed that the moderate decline in demand for personal loans was more pronounced in Abu Dhabi.
By loan type, the decrease was most significant in the car loan and housing loan segments.
In terms of credit availability, more than 92 per cent of survey respondents said that the credit standards were unchanged. But in aggregate terms a moderate easing of credit standards was reported in the September quarter.
Bankers who took part in the survey said the change in credit standards was largely driven by the economic outlook and customer-specific factors.
Survey results showed that the outlooks for financial and housing markets, as well as changes in income and interest rates are key factors that will determine demand for personal loans.
Bankers reported a moderate tightening in fees and charges while noting that their maximum loan-to-value (LTV) and maximum loan-to-income (LTI) ratios had softened marginally.
Survey respondents expect terms and conditions pertaining to fees and charges to tighten marginally in the fourth quarter, while maximum LTV and LTI ratios are seen easing further.