Abu Dhabi, UAETuesday 12 November 2019

FAB inks deal with Abu Dhabi Government to extend state-backed loans to SMEs

The UAE’s largest bank will operate Dh9bn set aside for small businesses under the Dh50bn Ghandan 21 programme

First Abu Dhabi Bank, the UAE's biggest bank by assests - stability in oil price has helped lift the growth prospects of lenders in the wider GGC market. Chris Whiteoak / The National
First Abu Dhabi Bank, the UAE's biggest bank by assests - stability in oil price has helped lift the growth prospects of lenders in the wider GGC market. Chris Whiteoak / The National

The government of Abu Dhabi signed an agreement with the First Abu Dhabi Bank, the biggest lender in the country, to extend state-backed loans to small and medium-sized enterprises to open up more avenues of financing for the cash-strapped sector.

FAB will extend loans to SMEs that will carry government guarantees in case of a default of up to 75 per cent of the loan amount, Saif Al Hajeri, chairman of Abu Dhabi's Department of Economic Development, said on Tuesday.

Under the terms of the agreement signed between the Abu Dhabi Investment Office and FAB, the lender will be the sole operator of the Dh9 billion set aside for SMEs under the government's Ghadan 21 economic stimulus package, Salil Ahuja head of products portfolio and value propositions at FAB's business banking, told The National. The deal was agreed on the sidelines of a private sector forum in the capital

"Businesses can apply from today for funding," he said. "FAB is the only bank to provide the loans right now but more banks can join the platform under ADIO."

Mr Al Hajeri said the option to apply for government-backed funds will be open to both Emirati and expatriate-owned businesses in the emirate, with revenues as low as Dh15 million and up to Dh250m.

The deal with FAB to plug a financing gap for SMEs is one of the eight initiatives rolled out by the Abu Dhabi government on Tuesday under the Dh50 billion Ghadan 21, which was announced by Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, in 2018.

The other initiatives under the three-year economic stimulus programme range from 30-day payment guarantees for suppliers and contractors to eco-tourism development initiatives, and cheaper electricity for industrial companies.

The SME sector is front-and-centre of Abu Dhabi’s agenda to diversify its economy away from oil, and a key pillar of the UAE’s national growth strategy.

SMEs accounts for 95 per cent of the registered businesses in the UAE and employ a little more than half of the entire labour force in the country. These businesses contribute 47 per cent of the UAE's gross domestic product, the region’s second-biggest economy. The aim is to increase this contribution to 70 per cent by 2021.

However, despite being the backbone of the economy, SMEs have faced difficulties in securing funding necessary for growth in the past few years, in the wake of a three-year oil price slump that began in 2014. The subsequent slowdown in the country as in other Gulf economies forced a number of smaller businesses to default on their loans and lenders became more averse to financing them, hindering their ability survive the downturn.

As defaults (or skips as they were known at the time) rose, some of the banks stopped lending to the sector entirely. The government and the Central Bank of the UAE, however, have been encouraging financing institutions to continue lending to SMEs. The economy in recent quarters has picked up momentum, with the non-oil sector showing signs of rapid improvement.

FAB is among some of the major banks in the country that continued lending to SMEs. The bank expects its SME business to continue delivering double-digit growth this year, as it eyes increasing its share of the SME financing market to beyond 20 per cent, Vikas Thapar, head of the business banking group at FAB told The National in March.

The bank, which currently controls about 15 per cent of the total SME financing market in the UAE, is looking to achieve the milestone by 2020. The combined book of FAB’s business banking group – primarily its SME business including assets and liabilities – grew a little more than 15 per cent in 2018 to Dh20bn, and Mr Thapar expects it to grow by double digits this year as well.

Updated: June 25, 2019 02:45 PM

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