UAE’s credit demand seen picking up in the third quarter
Respondents of Credit Sentiment Survey of the UAE Central Bank expected a tightening in credit standards but to a lesser extent for the December. Picture is used for illustrative purposes only. Image Credit: Supplied

Dubai: Demand for credit in the UAE is on the rise according to the third quarter Credit Sentiment Survey, a survey of senior credit officers across the banking sector by the Central Bank of UAE (CBUAE).

The credit sentiment results for the September quarter points to increased demand for credit, from both businesses and households, in the UAE, coupled with a softening of credit standards for the household sector.

Business loan demand was especially strong during the quarter, registering the strongest growth since 2014, and reflects ongoing confidence of the corporate sector in the economic recovery.

For the September quarter, survey results suggested that demand for business loans surged further with strongest increase since 2014.

According to survey results, 47.5 per cent of respondents reported no change, 42.5 per cent reported an increase in demand, while 10 per cent of respondents reported a decrease in demand.

Strong outlook for business loans

Looking forward, expectations for business and personal loan demand along with changes in credit standards bode well for credit growth in the months ahead.

The country’s economic recovery is fueling a positive outlook and higher expectations for business loan demand in the months ahead.

Data showed credit demand from corporates and small businesses reported solid increase in demand, which continued to strengthen across all emirates.

“Increased demand was widespread among the different loan categories, comprising large firms, domestic firms, government-related entities, and small and medium enterprises, and was primarily driven by customers’ sales, the property market outlook, interest rates, customers’ fixed asset investments, and seasonal influences,” the report said.

Looking ahead to the December quarter, business loan demand is expected to remain strong across all emirates, although survey respondents expect a minor net tightening of credit standards.

Moderate growth in consumer credit

The central bank survey results showed moderate growth in consumer appetite for credit in the September quarter, albeit at around half the rate as that for business loans, which stemmed from increased demand for personal loans across all emirates. Strengthening demand was evident across all categories with the exception of non-housing investment and car loans, with solid demand for personal – credit card, housing – owner occupier, and personal – other.

Respondents reported that the main drivers of increased demand were the housing market outlook, change in income, financial market outlook, and interest rates. The outlook for the December quarter remains optimistic with survey respondents expecting a strong increase in credit demand and a net easing of credit standards.

Looking ahead to the December quarter, survey respondents indicated that they are anticipating further growth in demand for credit from consumers. By Emirate, respondents expect a marked increase in consumer appetite and demand for personal loans across the board, predominantly in Northern Emirates and Dubai.

Contrasting trends in credit standards
The results of the third quarter credit sentiment survey revealed contrasting trends in credit standards applied by banks to business and consumer lending.
Data showed a tightening of terms and conditions for loans to businesses across all categories in the September quarter. Survey respondents reported the highest degree of tightening for collateralization requirements, as opposed to a lower degree of tightening for spread of loan rates over cost of funds. Over the next three months, survey respondents expect credit terms and conditions to tighten further, mainly with respect to premiums charged on riskier loans and collateralization requirements
Looking forward, survey respondents expect the factors driving the change in credit standards to remain the same as those reported in the September quarter.
In the consumer credit segment, survey respondents expect a continued net easing of credit standards for personal loans in the December quarter. Credit standards for personal loans are expected to ease across all categories.
The results of the survey pointed to a slight net easing of the maximum LTV (loan to value) ratio, a marginal net tightening of the maximum LTI (loan to income) ratio, and a small net increase in fees & charges (tighter financing costs).
For the December quarter, 98.7 per cent of the banks and financial institutions surveyed expect credit terms and conditions to remain unchanged, though a small net percentage of respondents anticipate a relaxation of the LTV and LTI limits, and increased costs of financing.