Dubai: Credit growth in the UAE reported moderate uptick during the first quarter of 2018 according to UAE Central Bank data and calculations by Abu Dhabi Commercial Bank (ADCB).
Gross credit growth in the UAE averaged 0.6 per cent month-on-month in the first three months of 2018 compared to an average of 0.1 per cent month-on-month in 2017 and 0.5 per cent in the first quarter of 2017.
While the first quarter numbers are clearly better in terms of year-on-year growth, analysts are cautious on the sustainability of this. “We highlight some caution on the loan growth outlook as we move into the seasonally quieter Ramadan and summer period,” said Monica Malik, Chief Economist of ADCB.
Credit growth remained steady in March at 2.1 per cent year on year, as in February. The private sector (led by the corporate sector) was largely behind the pick-up in credit growth though loans to the government also increased month-on month.
March data showed business loan growth accelerated to 4.5 per cent year on year from a weak expansion of just 0.4 per cent six months ago in September 2017. Corporate credit demand could be finding some support from the strengthening investment momentum in 2018.
Weakness in retail private credit demand has impacted the overall loan growth. “We believe that the weak consumer demand environment is tempering the pace of overall private sector loan recovery. Indeed, retail credit growth contracted month-on-month in the first three months of this year. We believe that higher interest rates and weaker consumer spending, especially following the introduction of value-added tax (VAT) in January, are behind the fall in retail demand,” said Malik.
March data showed deposits in the banking sector rose by a solid 2.6 per cent month on month (Dh42.3 billion) after three consecutive months of contraction. The monthly increase helped the yearly growth rate accelerate to 3.8 per cent year on year in March from 2.4 per cent in February. All areas saw a rise in deposits, though the main driver was the government segment. Indeed, government deposits in the banking sector increased by a robust 15.1 per cent month-on-month in March (Dh30.6 billion), taking year-on-year growth to 20.2 per cent.
Higher oil prices were seen as a key factor supporting this expansion. In parallel, net government deposits in the banking sector saw a notable rise in March, while government related entities (GRE) net deposits also increased in March, further suggesting deleveraging by this sector. Gross GRE deposits increased by 2.3 per cent month-on-month, up 5.1 per cent, year-to-date, while their loan growth fell for a fourth consecutive month.
The strong deposit growth last month saw the loan-to-deposit ratio moderating to 96.7 per cent in March from 98.5 per cent in February, improving the overall liquidity in the UAE banking system. ADCB analysts expect the recent stabilisation of US Libor to limit some of the upwards pressure on Eibor [Emirates Interbank offered rates] in the short term, especially given the widening between the US Fed Fund Rates and the Libor rate.
