x Abu Dhabi, UAESunday 21 January 2018

Central Bank says lending has fallen

Banks set aside an extra Dh1.2 billion last month to cover loan defaults.

Banks set aside an extra Dh1.2 billion (US$326.7 million) last month to cover loan defaults as lending contracted from the previous month for the first time since July. The Central Bank figures challenge claims from banks that they are willing to lend to businesses again after emerging from the worst of the financial crisis. "Banks continue to be hesitant to lend and demand just isn't picking up in Dubai," said Janany Vamadeva, an analyst at HC Securities and Investment.

New net lending contracted marginally month-to-month for the second time in the year so far. Overall loans totalled Dh1.02 trillion last month, up 5.6 per cent from October last year. That contrasts sharply with past years, when overall loans rose by as much as 50 per cent every year. Analysts expect lending to remain weak well into the start of next year as lenders book more provisions to cover bad loans. Most banks are expected to set aside equal or higher provisions through the first quarter and possibly into the first half of next year.

"Until we get more visibility, provisions will increase," said Ms Vamadeva. Non-performing loans account for an average of 2.5 per cent of total lending in the country. While banks claim they are well placed to absorb any losses, some analysts say banks should more than double existing provisions to about Dh60bn to account for their significant exposure to the property industry. Property prices in Dubai have fallen sharply in the past year and developers have cancelled about $24bn worth of residential projects across Dubai, according to the market intelligence company Proleads.

Banks have set aside about Dh29bn in general provisions so far this year, some 53 per cent more than the same period a year ago. Bank deposits advanced to Dh982.9bn, an 11.2 per cent increase from October last year. Some analysts expect non-performing loans in the UAE to reach about 4 per cent of total lending next year. They peaked at about 4.1 per cent in the US in 2007. Provisions that banks set aside for specific troubled loans - such as those extended to the troubled Saudi conglomerates Ahmad Hamad Al Gosaibi and Brothers or the Saad Group - reached Dh9bn, double the Dh4.4bn from a year earlier.

The gap between loans and deposits, generally a measure of banks' ability to lend, shrank to Dh37.6bn. That compares with Dh120bn at the end of last year, when the gap widened sharply after an estimated Dh180bn in speculative money left the country. Since then, the Central Bank has injected billions of dirhams in fresh liquidity. Bank assets now stand at Dh1.54 trillion, 8 per cent higher than a year ago.