x Abu Dhabi, UAEWednesday 17 January 2018

Debt fears mount as lending growth doubles in UAE

Consumer lending growth has doubled across the Emirates in a year as a wave of credit-fuelled spending triggers warnings over excessive borrowing.

Potential customers check out Jeep SUVs as they shop around in Abu Dhabi. Consumer borrowing has surged recently. Silvia Razgova / The National
Potential customers check out Jeep SUVs as they shop around in Abu Dhabi. Consumer borrowing has surged recently. Silvia Razgova / The National

Consumer lending growth has doubled across the Emirates as a wave of credit-fuelled spending triggers warnings over excessive borrowing.

Credit cards and borrowing to buy cars drove up profits for UAE banks reporting earnings this week after consumers took out loans worth Dh9.8 billion more during the first five months of the year, already matching the increase for the whole of 2012. If present rates of growth continue, 2013 is on track to record twice as much new borrowing as last year.

Personal loans to residents have increased 3.8 per cent across the sector to Dh270.7bn between January and May, according to the latest data available from the Central Bank. Data for June is yet to be released, but the total already outstrips the Dh8.8bn rise in personal borrowing reported during all of 2012.

The increase comes as the Abu Dhabi Department of Economic Development warns of the dangers of rising indebtedness among Emirati borrowers.

“It’s important to bring awareness to the sensitive subject,” said Jalal Masaabi, a department spokesman at an event aimed at raising awareness about credit-fuelled spending in the capital this week. “In the end we want a national who is productive to the economy and not living pay cheque by pay cheque to pay off their debt,” he said.

Big banks are reporting rapid growth from their retail books while their corporate customers tread with caution. Sector-wide lending is up 2.9 per cent between January and May, the same data showed.

The banking sector’s recovery from the property crash has helped to tempt customers into  car showrooms in greater numbers as credit becomes more freely available, according to analysts.

“We have more bank lending and that reverberates right through the economy,” said Richard Adams, director and senior consultant at Acuity Middle East, a consumer research company.

“As soon as you have some kind of increase in consumer confidence, discretionary spending on things like auto sales pick up.”

Emirates NBD grew its lending book during the second quarter at its fastest rate of growth since the third quarter of 2008.

A 15 per cent increase in personal lending growth this year was “offset by the develeraging of the large corporate sector and real estate sectors”, said Surya Subramanian, Emirates NBD’s chief financial officer, in a conference call on Monday.

The UAE economy is expected to decelerate this year to 3.8 per cent from 4.4 per cent in 2012, the bank said. Economists say that strong external and domestic demand is helping to sustain growth. “Whether you look at tourist arrivals, cargo tonnage, room occupancy, real estate rents and prices, the economy appears to be doing quite well,” said Raza Agha, the regional chief economist at Russia’s VTB Capital.

Some banks that are reporting lower growth are making up elsewhere in their retail books.

Emirates NBD’s credit card lending has grown by 14.3 per cent during the first half of the year to Dh3.65bn. Emirates Islamic Bank, its Sharia-compliant subsidiary, boosted financing from credit cards by 20.9 per cent to Dh974m during the same period.

National Bank of Abu Dhabi reported personal loans of Dh27.2bn so far this year, up 1.8 per cent.

The bank’s retail deposits, on the other hand, have surged 22.9 per cent to Dh49.5bn in the same period.

Car loans also helped RAKBank to offset deleveraging among its retail banking customers. The bank’s car loans grew 23.2 per cent to Dh1.52bn, the fastest growing segment of a retail lending portfolio which has held steady this year.

Dealers sold more than 245,000 cars in the UAE in 2012 and Frost & Sullivan projects the number could reach 370,000 vehicles this year.

Distributors reported brisk sales of vehicles from Audi, Volkswagen and Rolls-Royce, which sold more units in Abu Dhabi than anywhere else worldwide during the first six months of the year.

The rate of growth of car sales in the Arabian peninsula is only surpassed by members of the Association of Southeast Asian Nations (Asean) trading bloc, said Neil King, an automotive analyst with Euromonitor International.

 

ghunter@thenational.ae

gduncan@thenational.ae

* With reporting by Hadeel Al Sayegh