Dubai: Credit demand in the UAE made a remarkable recovery in overall credit appetite and demand for loans, both business and personal in Q1 2021, according to the latest Credit Sentiment Survey of the Central Bank of UAE (CBUAE).
The Credit Sentiment Survey is a quarterly publication of the CBUAE that collects information from senior credit officers from all banks and financial institutions extending credit within 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.
The Q1 2021 survey showed in terms of expectations, survey respondents expressed a positive outlook towards the upcoming quarter, foreseeing a rise in demand for loans from both consumers and businesses. Looking forward, credit standards for business and personal loans are expected to soften further relative to the March quarter.
For the March quarter 2021, survey respondents reported a moderate rebound in lending to corporate and small businesses.
The increased demand for loans was notable among local, large firms, conventional loans, and Islamic loans. The main factors contributing to the change in demand for business loans were improvement in customers’ sales, property market outlook, customers’ fixed asset investment, and seasonal influences.
According to the survey results, 47.8 per cent of respondents reported no change in demand, 34.8 per cent reported an increase, while 17.4 per cent of respondents reported a decrease in demand. By Emirate, survey results revealed a marked increase in credit appetite and demand for business loans across all Emirates, predominately in Northern Emirates and Dubai.
With respect to outlook for the June quarter, survey results revealed an optimistic outlook and continued strengthening of business loan demand across all Emirates.
The increase in demand for loans was notable among local, large firms, conventional loans, and Islamic loans. Expat, government-related entities, and small & medium enterprises have also contributed to the increase in demand, but to a lesser extent.
In terms of expectations for the next quarter, survey respondents are projecting demand for business loans to increase across the board. The increase in demand is expected to be driven notably by large firms, conventional loans, and local.
Credit standards are expected to soften further for both small and medium enterprises as well as large firms.
Lending to individuals
The survey results indicated that demand for personal loans, in aggregate, remained in the positive territory and continued its recovery in the first quarter.
The increase in overall demand, which was attributable to the strengthening of demand across all Emirates, most significantly in Dubai, was evident among housing – owner occupier, personal – credit card, conventional loans, and housing – investment.
The survey indicated that the rise in demand was primarily steered by financial market outlook, housing market outlook, change in income, and interest rates.
In terms of expectations for the June quarter, appetite and demand for personal loans is expected to increase further, and credit standards, in aggregate, are expected to ease moderately.
With respect to terms and conditions on loans, a tightening was noted across all terms and conditions in the March quarter, although significantly smaller than in previous quarters of 2020, primarily those pertaining to collateralization requirements and maximum size of credit lines.
Easing of credit conditions
Survey results revealed a marginal easing in maximum Loan-to-Value (LTV) and maximum Loan-to-Income (LTI), while fees and charges tightened marginally. In terms of outlook for the June quarter, survey respondents are expecting terms and conditions pertaining to maximum LTV and LTI to continue easing, while fees and charges are expected to continue tightening, although to a lesser extent than the March quarter.
For the June quarter, survey respondents expect continuous tightening across the board, although to a lesser extent, mainly with respect to premiums charged on riskier loans and collateralization requirements.
By market segment, demand for personal loans increased moderately in the March quarter across the board, with the exception of non-housing investment and housing – other (includes refinancing, renovations). The increase in demand was evident among housing – owner occupier, personal – credit card, conventional loans, and housing – investment. Islamic loans, personal – other, and car loans also registered an increase, but to a lesser extent. Survey respondents' outlook for the upcoming quarter suggests further growth in personal loan demand across all loan types, most significantly in housing – owner occupier, personal – other, Islamic loans, conventional loans, and credit card.