Bankers expect lending will start the year on a strong footing after the announcement of a Dh330bn spending package by the Abu Dhabi Government.
Dh330bn spending plan to boost lending to Abu Dhabi's non-oil sector
The announcement of a Dh330 billion (US$89.84bn) spending package for Abu Dhabi this week is expected to contribute a big boost to lending for companies linked to the emirate's non-oil sector, top bankers said.
Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, announced the spending package on Sunday following a review of the government sector's performance.
With cash earmarked for projects including health care, education, housing developments and sewerage systems, expectations are high that local contractors and the banks that lend to them will find plenty of opportunities for growth.
"Business in the UAE seems to be getting back on its feet with the new projects being announced," said Nilanjan Ray, the head of business banking at Abu Dhabi Commercial Bank.
"We see more emphasis on the service sector with continued growth of the logistics sector."
The focus on transportation and infrastructure would help cement the UAE's position as the leading trade hub for the region and boost its capabilities in global logistics, said Rezwan Mirza, the regional head of the corporate banking division at Barclays.
"The continued diversification away from hydrocarbons will help ensure a more robust and resilient economy for Abu Dhabi," he said.
Lending has grown at a slow rate with many banks still mopping up bad debts left over from restructurings at Dubai World, and the banking sector has been reluctant to resume the credit expansion that began before the financial crisis.
Sector-wide lending grew at a rate of 3 per cent during the first 10 months of last year, according to the most recent data from the Central Bank.
But banks should find ample opportunities to extend lending lines as the new projects are rolled out, while also attracting international funding, added Mr Mirza.
"Domestic banks have a lot of liquidity they are looking to deploy and Abu Dhabi's initiative may provide attractive opportunities for them to invest in," he said. "At the same time, many international banks are very positive on the economic prospects of the UAE and they will also look to play an active role."
Although it was not possible to compare the new spending plans to previous capital expenditures, the effect on corporate activity was likely to be substantial, said Martin Kohlhase, a financial analyst at Moody's Investors Service.
"In terms of sheer numbers, it's a big number, but spread over a number of years," he said.
Details are scarce, but projects announced so far offered something for everyone in corporate Abu Dhabi, he added.
"[Some projects will] benefit utilities like Taqa, road and transport [projects] might go in the direction of Aldar."
Some of the emirate's government-linked companies would be likely to return to bond markets to help fund the flurry of activity, as investors retain appetite to seek out companies with strong credit ratings in emerging markets, added Mr Kohlhase.
"We expect that 2013 will not be any different in terms of corporates seeking the public debt market as a means to get funding," he said.