UAE bank credit rose by nearly Dh20 billion in January this year but consumers and homeowners largely missed out.
Instead, the Government and the private sector were the main beneficiaries of the 2 per cent increase in lending from January last year, the latest Central Bank data show. Total lending reached Dh977.2bn (US$266.05bn) during the month.
"Banks have been opening up lending this year, focusing on better quality credit borrowers, but they are still very selective about retail and mortgage lending," said Mahin Dissanayake, a director at Fitch Ratings.
Analysts expect lending to pick up marginally this year.
Increasing demand, improving bank liquidity and low interest rates are expected to underpin credit expansion.
But so far, many banks have remained cautious about offering finance to some areas of the economy. Consumer lending had declined 2.8 per cent by January from August, according to Central Bank data.
Mortgage lending crept up only 0.7 per cent over the same period.
New Central Bank retail regulations curbing excessive lending are forecast to limit any resurgence in consumer borrowing, say analysts.
Persisting weakness in the property market will also deter fresh mortgage lending.
Lending to the government sector rose 11.4 per cent to Dh101.2bn in January compared with the same month last year.
Banks have been happy to increase their exposure to government projects, particularly in Abu Dhabi, as oil prices have risen higher.
At the same time, lenders are gradually becoming more relaxed about loans to the private sector as signs of strengthening economic activity emerge.
Total bank lending rose 2.6 per cent in the first quarter of the year compared with the same period last year, after taking into account provisions set aside by lenders.