UAE credit growth expected to pick up in second quarter
Credit demand for both business and personal needs to rise
Dubai: Credit growth in the UAE is expected to pick up momentum in the second quarter of this year according to the latest credit sentiment survey of the Central Bank of UAE (CBUAE).
The credit sentiment survey is a quarterly publication of the central bank, which collects information from senior credit officers from all banks and financial institutions extending credit within the UAE. The information constitutes qualitative responses to a series of questions relating to credit conditions in the most recent quarter and expectations for the upcoming quarter.
For the first quarter of the year, the survey data suggested an increase in demand appetite for business loans. Demand for personal loans in aggregate, has recovered and moved into the positive territory. Such an increase was attributable to the strengthening demand in Dubai and Northern Emirates.
The increase in loan demand was most evident in financial institutions (excluding banks), construction, and all others. Transport, storage and communication, manufacturing, and retail and wholesale trade have also increased but to a lesser extent.
For the second quarter of the year, survey respondents predicted demand for loans to increase across all industries, predominantly in construction, transport, storage and communications, manufacturing, and retail and wholesale trade.
In terms of outlook for the June quarter, demand appetite for business and personal loans was expected to increase.
Survey results for the first quarter revealed an increase in demand for business loans across all emirates, and particularly in Dubai.
By loan type, demand increased across the board, with the exception of small and medium enterprises and non-residents.
Factors that strongly attributed to the change in business demand for loans were customers’ sales, customers’ fixed asset investment, and property market outlook. When asked about credit standards, around 70 per cent of survey respondents reported no change.
In terms of outlook for the June quarter, demand for business loans was expected to increase further across all emirates and firms.
In the first quarter of 2019, demand for personal loans, in aggregate has recovered. The increase was attributable to the strengthening demand in Dubai and Northern Emirates, while demand for personal loans in Abu Dhabi has decreased marginally.
In terms of credit availability for individuals, more than 72 per cent of survey respondents cited that the credit standards were unchanged.
When asked about which factors could be attributed to the change in demand for loans in the June quarter, survey respondents reported that changes in income and financial market outlook were the most important.
Survey results revealed an increase in personal loans for Islamic loans and housing-other (includes refinancing, renovations), while demand for conventional loans remained unchanged.
On the other hand, the decrease in demand for loans was most evident in car loan and housing investment. Loans for personal — other, non-housing investment, housing-owner occupier, and credit card have also declined but marginally.
In terms of outlook for the second quarter of the year demand for personal loans was expected to increase and credit standards in aggregate was expected to tighten
With respect to credit terms and conditions in the March quarter, nearly 85 per cent of survey respondents reported no change across the board. In aggregate, however, survey respondents reported a marginal tightening in maximum loan-to-value (LTV) and fees and charges, while maximum loan-to-income (LTI) eased marginally.
Loan growth declined in March
Dubai: Credit growth decelerated on monthly and yearly terms in March according to data from the Central Bank of UAE analysed by Abu Dhabi Commercial Bank’s economic research team.
Despite improvement in credit demand indicated in the first quarter credit sentiment survey of the Central Bank, data for March showed that gross credit growth decelerated to 0.2 per cent, month-on-month in March, from 0.6 per cent in February.
This resulted in the yearly growth figure slowing to 4.2 per cent year-on-year in March from 4.7 per cent in February and January.
The data for the first quarter showed soft pick up in credit growth with average growth of 0.4 per cent month on month in the first quarter.
“We highlight some caution on the loan growth outlook in the second quarter with the earlier start of Ramadan in 2019. Overall, the government (+2.9 per cent year to date) and GRE (+2.3 per cent year to date) segments saw stronger credit growth in the first quarter, with the private sector expanding by a softer 0.9 per cent,” said Monica Malik, chief economist of Abu Dhabi Commercial Bank.
The weak consumer demand environment is expected to impact private-sector credit growth in the second quarter.