UAE Central Bank says demand for credit in downtrend during the fourth quarter

The net balance measure for business lending dropped to minus 8.1 in the fourth quarter from plus 9.9 in the previous quarter.

Abu Dhabi lender FGB has let go of up to 100 staff on what it said was a restructuring move. Mona Al Marzooqi / The National
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A key measure of demand for loans in the UAE has turned negative for the first time since 2014.

The Central Bank said a survey that tracks demand for loans in the fourth quarter of last year moved into negative territory for the first time since the bank introduced it in 2014 amid the steepest drop in oil prices since the financial crash.

Small businesses and individuals have been shying away from borrowing, and banks have also become more reluctant to lend at a time when bank deposits are dwindling amid lower government revenues from the sale of crude oil.

“I think it probably is a turning point,” said Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG-Hermes. “If the oil price does not recover meaningfully, there would be a period where loan growth is likely to be subdued.”

Mr Malik said UAE loan growth was likely to slow to 4 to 5 per cent in 2016 from 8 per cent last year.

As well as less demand from SMEs, banks have also been making it more difficult for these businesses to borrow money.

When the economy begins to sour, they are usually first in the firing line.

Higher interest rates are also making companies and individuals think twice about taking out a loan.

“Overall, credit conditions appeared to have softened further following consecutive quarters of robust demand since the inception of the survey in 2014,” the central bank said in its quarterly credit sentiment report survey released yesterday. “Such results likely reflect the heightened uncertainty surrounding the global economy and the low oil price environment.”

The Central Bank said that its net balance measure in aggregate for business loans dropped to -8.1 in the fourth quarter.

But it expected demand to improve in the current quarter.

Demand for personal loans also dropped since 2014, dragged down by weakening demand for housing loans.

The respondents to the survey cited rising interest rates as one of the main reasons behind customers shunning debt.

Demand for debt in the UAE was anecdotally declining in 2015 after the price of oil started its long descent in the previous year.

Gulf Finance, a Dubai-based lender that funds small and medium sized-enterprises, said in October that a survey it conducted during the third quarter of 2015 revealed that 13 per cent of SME respondents found it more difficult to raise money. In the second quarter, however, no one expressed difficulty getting money to fund growth, according to the survey.

Banks are also finding it harder to collect debt payments. United Arab Bank, the Sharjah-based lender, said in October that it lost Dh272.6 million during the third quarter because of bad commercial loans.

However, banks overall remain profitable despite a slowdown in demand.

But not everything is rosy for lenders, however. Banks and other financial service firms are starting to feel the strain as the price of oil continues to flounder after losing more than 70 per cent of its value since mid-2014.

FGB, HSBC, Standard Chartered and RAKBank have all cut jobs in the past six months.

As well as job cuts, the default rate on loans by SMEs has risen sharply at some lenders.

mkassem@thenational.ae

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