Dubai: Credit demand in the UAE for the September 2019 quarter is expected to improve, driven by increase in appetite for both business and personal loans, while credit standards are projected for a further tightening, according to the latest Credit Sentiment Survey of the UAE Central Bank.
The study is based on information collected 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 central bank survey for the June quarter revealed an increase in appetite for business loans coupled with a further tightening of credit standards. Demand appetite for personal loans, however, has decreased moderately, although credit standards remained unchanged.
This decrease in demand for personal loans was attributed to the weakening in demand across all emirates.
Business loans
In the June quarter, survey respondents reported a moderate increase in demand for business loans across all emirates. By loan type, demand increased across all categories, with the exception of non-resident. In terms of credit standards, 76 per cent of survey respondents reported no change. However, in aggregate, a positive net balance measure of 10.2 was recorded suggesting a further tightening of credit standards.
When asked about the change in demand for business loans by industry in the June quarter, survey respondents reported an increase in demand in manufacturing, transport, storage and communications, electricity, gas and water, and construction. On the other hand, survey results suggested a decrease in business loans in financial institutions (excluding banks), mining and quarrying, retail and wholesale trade, and property development, while all other economic activities remain unchanged.
For the current (September) quarter survey respondents were optimistic and expected demand for business loans to increase further across all emirates and firms. In terms of credit availability, survey respondents also expected further tightening in credit standards and across all terms and conditions.
Personal credit
Demand for personal loans, in aggregate has decreased moderately for the June quarter. The modest decrease was attributable to the weakening in demand across all emirates, most significantly in Abu Dhabi.
Survey results revealed that housing market outlook, financial market outlook, change in income, and interest rates were the most important factors that attribute in change in demand for personal loans.
Increase in demand for loans was most significant among local and conventional loans. Expat, Islamic finance, large firms government related entities, and small and medium enterprises increased but to a lesser extent.
Credit standards
June quarter survey results reported a stronger tightening of credit standards for small and medium enterprises relative to large firms. Moreover, survey respondents expected tightening in credit standards but to a lesser extent for the September quarter.
The survey results pointed to a further tightening that occurred across the board, most evidently related to terms and conditions pertaining to collateralisation requirements, and premiums charged on riskier loans. For the September quarter, survey respondents predicted a tightening across all terms and conditions, particularly with respect to collateralisation requirements, and premiums charged on riskier loans.
When asked about which factors were attributable to the change in credit standards, survey respondents revealed that economic outlook, industry or firm specific conditions, and quality of bank’s asset portfolio are the most significant factors.
In the personal credit segment, in terms of credit availability, more than 83 per cent of survey respondents cited that the credit standards were unchanged. For the September quarter, demand for personal loans is expected to increase and credit standards in aggregate is expected to tighten marginally.
