UAE personal loan growth likely to slow down after Dh64bn surge in H1 |
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Strong domestic demand boosted personal loans extended by UAE banks by nearly Dh64 billion in the first half of this year but experts expect their growth to have slowed down in the second half.
From Dh137.31bn at the end of 2007, the total personal loans provided by the country's 24 national banks and 28 foreign units surged to a record Dh201.65bn at the end of June, an increase of about Dh64.34bn, according to the Central BankCentral Bank
.The figure at the end of June includes around Dh147.63bn as personal loans for business purposes and the rest are in personal loans for consumer purposes. The first category soared by around Dh47bn in the first half while the second swelled by nearly Dh17.7bn.
"It was one of the biggest increases in personal loans in such a period of time and was a result of strong domestic demand and high inflation rates," said Ziad Dabbas, an adviser at the National Bank of Abu Dhabi. "I believe such loans remained high in the following months but the pace of growth should have slowed down due to the credit crunch."
At the end of June, personal loans accounted for nearly a quarter of the total credits of around Dh810bn extended by UAE banks to residents. The increase in personal loans also accounted for nearly 22 per cent of the growth in total credits of nearly Dh281bn in the first half.
The Central BankCentral Bank
figures showed overall credits, including non-resident loans, leaped to an all-time high of Dh889.2bn at the end of June from Dh718bn at the end of 2007. The sharp rise boosted credits above deposits' the 1:1 ratio for the first time despite a steep increase in deposits from Dh713bn to Dh833bn.Lending by the UAE banks swelled above their deposits despite an earlier drive by the Central BankCentral Bank
to curb liquidity in a bid to tackle soaring inflation.The surge has allied with a worsening global financial crisis to prompt the Central BankCentral Bank
to take further action by approving an injection of Dh50bn into the banking system. Another facility of Dh70bn as a deposit with banks was announced later by the federal government.The liquidity crunch comes amidst worsening global financial crises following the collapse of the US Lehman Brothers bank last week although economists believe lending by UAE banks is still within the allowed limits.
In a report last month, the Kuwaiti-based Global Investment House said UAE banks have been locked in a drive to attract deposits to but it downplayed risks given their minimal global exposure.
"The bottom-line of the banking sector jumped 49 per cent during 2003-2007. The swelling bottom line has been attributed to effective deposit mobilisation paving the way to meet the robust demand for credit," GIH said. "Supplemented further by limited exposure to the US subprime and related structured investment products, nominal provisioning needs, adherence to best risk management practices and support and commitment from affluent sponsors regarding capital enhancement as and when required, we see no reason why the UAE banking sector may not prosper in the coming period."
By Nadim Kawach
© Emirates Business 24/7 2008
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