Personal and corporate default have hit multi-year lows as consumers have become more savvy with regard to their payments as well as new jobs created by the UAE’s strong economic growth and stability in the employment market helping consumers make their payments on time.

Bankers and analysts say that defaults are at around 10-15-year lows as consumers in the UAE are increasingly opting for right debt for the right type of debt that is needed to meet their needs.

Raheel Ahmed, CEO of RAKBank, said defaults have gone down significantly.

“Even during Covid-19, some of the measures that the UAE government and the Central Bank took in terms of reschedules, restructures and reduction in interest rates for SMEs and individuals were very positive. We should give them credit that we didn’t see the same wave of credit default during the pandemic as we saw in 2014-15. It is much lower than the Covid-19 year. We are in the lowest loss rate environment that we have in the last 10-15 years,” said Ahmed.

He said RAKBank’s loss ratio used to be around 4 to 6 per cent and now it is running at 2 per cent and 2.5 per cent.

According to the UAE Central Bank’s fourth-quarter 2023 report, lending by banks in the country grew 5.3 per cent year-on-year to Dh1.738 trillion at the end of last year. Credit cards, personal, and housing loans were the main contributors to household loan demand.

Ahmed said the credit bureau has matured. “People now understand the cost of borrowing and if they default what happens as a consequence. That has created much more financial discipline among consumers. Secondly, people have got much more financial literacy, although there is still a lot of work that needs to be done on that. For example, what type of borrowing is needed for what kind of need,” Ahmed told Khaleej Times in an interview.

“In the past, people even used credit cards to buy cars. Some people would pay a deposit for a house through a credit card. It was not meant for that. Access to credit has increased and people have become much more savvy to use the right type of debt. Because of this, we are seeing very low defaults on personal loans side also,” he said.

He also credited the emergence of digital banking making it easier for consumers to pay bills and be much more disciplined.

“The friction of making payments has come down very significantly and incentives and disincentives to not be late have also contributed to it."

On the back of higher deposits, Capital Economics said banks aggressively extended lending for personal and mortgage loans and credit cards as demand grew due to an increase in population and new job opportunities.

James Swanston, economist for the Mena region at Capital Economics, said non-performing loans have recently declined to a four-year low which will be supportive of credit conditions.

“Indeed, private sector credit growth is already picking up and will be further bolstered by an impending monetary loosening cycle. At the same time, lower inflation will support consumer spending,” he added.

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