Emirates NBD head office. The UAE banks witnessed a decline in credit appetite both for business and personal loans during the second quarter of 2020, according to the Credit Sentiment Survey of the Central Bank of UAE. Image Credit: Ahmed Ramzan/Gulf News archive

Dubai: The UAE banks witnessed a decline in credit appetite both for business and personal loans during the second quarter of 2020, according to the Credit Sentiment Survey of the Central Bank of UAE.

The survey, a quarterly publication of the CBUAE collects information from senior credit officers of all banks and financial institutions extending credit within the UAE.

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Although results do not reflect the views of the Central Bank, the information collected constitutes qualitative responses of banks to a series of questions relating to credit conditions in the most recent quarter and expectations for the upcoming quarter.

While heightened uncertainty about economic activity due to the Covid -19 pandemic, reduced global growth, and a low oil price environment contributed to decline in loan demand, bankers expect corporate credit demand to rebound in the third quarter.

Corporate demand

The survey results showed credit demand from corporates and small businesses showed a decline, with over half of respondents, (53 per cent), assessing that demand has decreased either substantially or moderately. Almost a quarter of respondents saw no change in demand, while 22 per cent saw a moderate or substantial increase in demand.

Details on corporate demand for credit showed demand decreased across all corporate borrower categories except government related entities (GREs) where it showed a slight increase.

In terms of credit standards, 38.5 per cent of polled respondents registered no change while 37.6 per cent said that their bank has tightened credit standards moderately, and 14.5 per cent answered that the tightening was significant. 9.5 per cent of respondents have seen moderate relaxation of credit standards. Concerns about the economic outlook was reported as the main factor explaining tightening of credit standards. By economic activity, demand for loans has shown a similar decrease for all sectors, except for utilities and nonbank financial institutions which registered a more modest decline.

More than three-fourth (76.9 per cent) of survey respondents viewed the decrease in sales as the predominant factor explaining the change in demand for business loans.

Personal loans

Covid-19 was seen as the key reason for decline in demand for personal loans and tightening of credit standards. The trend is broadly similar for all product categories of personal lending. The main explanation for the reduced demand in the second quarter was the adverse change of income, but the housing market and financial market outlook also contributed.

A moderate tightening of credit standards was reported by 47.4 per cent of respondents, while only 9.5 per cent reported significant tightening. 40 per cent have observed no change in credit standards, and 3.2 per cent of respondents have observed moderate relaxation.

Majority (92.4 per cent) of respondents reported that they have left fees and charges unchanged, and 7.6 per cent reported they have eased them moderately. Three quarters of respondents reported that they have kept the maximum loan-to-value ratio unchanged, while 14.1 per cent had relaxed it.


With respect to expectations for the third quarter of 2020, demand for business loans is anticipated to rebound, with 32 per cent of respondents expecting moderate increase in demand for loans, while 4.2 per cent expect significant increase. Respondents of Abu Dhabi and Dubai are more positive about the outlook than respondents from the Norther Emirates.

Nearly half of respondents (43.1 per cent) expect their credit standards to remain unchanged, while 54.3 per cent anticipate further tightening.

For the third quarter of 2020, there is less optimism in relation to the household segment, compared to the corporate lending segment. While almost half of respondents expect the household demand to stay unchanged, 32.3 per cent of respondents expect a moderate or substantial decrease.

Banker expect demand to increase more in Dubai compared to the other Emirates.

In the third quarter, bankers expect credit standards for personal lending to tighten further, but to a lesser extent. Most of respondents, 64.4 per cent, believe that the standards will remain unchanged.