UAE’s surging credit appetite points to solid economic revival

Dubai: Credit appetite in the UAE economy gained momentum in the second quarter and is expected to sustain the trend in the current quarter according to the Credit Sentiment Survey of the Central Bank of UAE (CBUAE).

The Credit Sentiment Survey is a quarterly publication of the CBUAE, which collects information from senior credit officers from all banks and financial institutions extending credit within the UAE.

Survey results for the June quarter were indicative of a sustained recovery in overall credit appetite and loan demand in the UAE, coupled with some easing of credit standards.

The survey results showed demand for business loans was solid, with the demand growth measure recording its strongest increase since September 2018.

Demand for business loans

For the June quarter, survey results revealed that demand for business loans grew at a robust pace. According to survey results, 46.7 per cent of respondents reported no change, 39.3 per cent reported an increase in demand, while 14 per cent of respondents reported a decrease in demand.

By Emirate, survey results suggested a notable increase in credit appetite and demand for business loans across the board, most significantly in Dubai and northern emirates.

By market segment, demand increased across all categories in the June quarter. The increase in demand for loans was evident among large firms, locals, conventional loans, government-related entities, and expats. Small and medium enterprises, non-residents, and Islamic loans have also contributed to the increase in demand, but to a lesser extent.

In terms of outlook for the next quarter, survey respondents expect demand for business loans to increase across the board. The increase in demand is expected to be driven notably by locals, expats, large firms, and conventional loans.

The underlying factors driving the change in demand for business loans in the June quarter were customers’ sales, the property market outlook, customers’ fixed asset investments, seasonal influences, and interest rates.

In terms of credit standards, aggregate results point to ongoing tightening, though the pace of tightening has eased up in recent months.

As to the outlook for the September quarter, credit appetite and demand for loans is expected to remain strong and increase further across all economic activities, predominately in retail & wholesale trade, manufacturing, construction, transport, storage & communications, and all others.

Personal loans

Survey results for the June quarter suggest that demand for personal loans continued to grow, though at a relatively moderate pace when compared to business loans. The increase in demand was evident across all Emirates, and was notable among personal – credit card, personal – other, housing – owner occupier, conventional loans, and Islamic loans.

Survey respondents indicated that the growth in demand was largely attributable to the housing market outlook, change in income, interest rates, and financial market outlook. For the September quarter, survey respondents expect a further increase in consumer appetite for credit, while credit standards are expected to ease further.

For the June quarter, survey results suggested a moderate increase in demand for personal loans, in aggregate.

The increase in demand was attributable to the strengthening of demand across all Emirates, particularly in Dubai.

In terms of outlook for the September quarter, survey respondents expect a further increase in consumer appetite and demand for personal loans. 

Survey respondents’ outlook for the upcoming quarter suggests further growth in personal loan demand across all loan types, most significantly in housing.

Easing credit standards

Credit standards continued to tighten in the June quarter, but to a lesser extent than in the March quarter. Across firm size, survey respondents reported less tightening for large firms relative to small and medium enterprises. For the next quarter, credit standards are expected to continue to tighten, but less so than in the June quarter.

With respect to specific terms and conditions on loans, a moderate tightening of credit standards was observed across all categories in the June quarter, with the exception of spread over cost of funds. Terms and conditions pertaining to premiums charged on riskier loans perceived a smaller tightening than collateralization requirements and maximum size of credit lines.

For the upcoming quarter, survey respondents are expecting a further tightening across all terms and conditions, although to varying degrees, particularly with respect to collateralization requirements and maximum size of credit lines.

With respect to credit terms and conditions in the June quarter, 98 per cent of survey respondents reported no change. However, survey results revealed a marginal easing in maximum loan-to-value (LTV), while maximum loan-to- income (LTI) and fees & charges remained unchanged. With respect to the next quarter, survey respondents expect terms and conditions pertaining to maximum loan-to-value (LTV) and fees & charges to tighten marginally, while maximum loan-to-income (LTI) is expected to remain unchanged.