x Abu Dhabi, UAESunday 21 January 2018

Lending hits 12-month high as banks loosen limits

Credit growth increases in January as banks' appetite for new lending risk gradually picks up.

Lending rose at its highest monthly rate in at least a year in January as banks gradually loosened credit restrictions on customers.

But an acceleration of credit growth to the highs before the financial crisis have so far been ruled out by analysts.

"It's a moderate increase as a lot of banks are starting to lend again after a consolidation last year, but the lending remains very selective," said Mahin Dissanayake, the director of financial institutions at Fitch Ratings in Dubai.

Total loans and advances increased to Dh1.04 billion (US$283.1 million) in January, up by 1.2 per cent from Dh1.03bn in December, according to Central Bank data released yesterday.

Many banks have slowly begun to increase their exposure to retail customers after restricting lending during the financial crisis.

Anxious to avoid a repeat of the glut of lending prior to the crisis, the Central Bank has unveiled caps on retail lending at 20 times an individual's salary or monthly income. The regulator on Sunday announced measures to help ensure lending returned to sustainable levels.

An overhang of corporate and property-related debt is expected to remain a weight on the banking sector's ability to extend credit growth.

As a result, non-performing loans were likely to rise further this year, Saeed al Hamiz, the senior executive director of the Central Bank's banking supervision and examination department, said on Sunday.

Bank deposits rose by 0.7 per cent in January to reach Dh1.06bn, compared with Dh1.05bn the previous month, the data show.

Meanwhile, monetary supply in the economy showed little signs of a significant pickup in future inflationary pressures, the data revealed.

M1 money supply, which includes currency in circulation and monetary deposits, rose to Dh236.9bn in January, up 1.7 per cent from Dh232.9bn in the previous month.

M2 money supply, including M1 and other deposits, increased by 1.1 per cent to Dh795.2bn from Dh786.4bn.

M3, comprising M2 plus government deposits, edged to Dh997.5bn, 1.2 per cent up from Dh985.2bn the previous month.