x Abu Dhabi, UAESunday 21 January 2018

UAE banks show signs of recovery with September lending surge

Lenders benefited from the fastest rate of deposit growth since March, according to the latest data from the Central Bank.

Lending grew at the fastest rate in the past three months during September as a burst of new business activity helped banks to strike deals.

Banks also benefited from the fastest rate of deposit growth since March, according to data from the Central Bank.

Total bank deposits increased by 1.5 per cent during September to close at Dh1.14 trillion (US$311.19 billion), while total bank loans and advances - net of provisions and interest in suspense - increased by 1.2 per cent to Dh1.10tn.

Credit growth has been slack this year as a result of new Central Bank limits on lending to governments. Banks are not allowed to lend governments or their commercial holding companies more than their total capital.

The UAE economy has been slowly finding its feet this year as business confidence returns. A jump in new orders and exports pushed the HSBC purchasing manager's index to 53.8 in September, a figure that was matched the following month.

A PMI reading of more than 50 signals expansion; below 50 signals contraction.

The financial crisis left the balance sheets of banks loaded with bad debts, forcing them to set aside billions of dirhams of provisions for problem loans.

Such capital totalled Dh64.2bn in August, according to the Central Bank. A figure for September was not available.

However, although banks remain well capitalised, they have been hesitant to lend.

Several big banks, including National Bank of Abu Dhabi, Emirates NBD and Noor Islamic Bank, say they are over the Central Bank's limit. So far, only NBAD says it has secured an extension to the new cap.

In the meantime, bonds and sukuk have become more attractive to local companies.

International Petroleum Investment Company and Abu Dhabi National Energy Company, also known as Taqa, have hired banks for bond sales that could be due before the end of the year, Reuters reported yesterday.

It has also been the best year for Arabian Gulf sukuk sales on record.

The Central Bank has laid plans to develop a yield curve - selling government bonds of different maturities - as a means of assisting companies seeking to tap into bond markets and borrow over different time periods.

Government bond yields typically set the minimum interest rate at which companies can reasonably expect to borrow.

The Central Bank said lending had grown by 3 per cent during the first nine months of the year, while the ratings agency Moody's anticipates growth of 4 to 7 per cent for the whole year.