Bank credit to private sector down

UAE banks are maintaining a cautious lending approach they adopted in the wake of the 2008 financial distress as their credit to the private sector tumbled by around Dh11 billion in July, according to official data.

In contrast, loans by the country’s 23 national banks and 28 foreign units to the public sector surged by about Dheight billion, indicating the banks are sticking to their risk-aversion policy in contrast with the pre-crisis generosity.

Central Bank figures showed total credit extended by the 51 banks in the second largest Arab economy grew by just around 2.4 per cent in the first seven months of 2012, a fraction of loan growth during the boom years before the crisis.

From around Dh788 billion at the end of 2011, total loans rose to about Dh807 billion at the end of July, the Central Bank said in its latest statistics bulletin.

A breakdown showed credit to the private sector shrank from around Dh577 billion at the end of June to Dh566 billion at the end of July.

Loans to the public sector swelled from Dh116 billion to Dh126.4 billion in the same period and most of the increase was in credit to financial institutions.

As for the first seven months, credit to the private sector receded by15 billion while that to the public sector surged by about Dh14 billion.

The report showed loans to the government edged up from Dh113.2 billion at the end of June to Dh114.9 billion at the end of July.

The report showed the decline in credit to the private sector in July was mostly in lending to the business and industrial sector as it dipped to around Dh312.8 billion at the end of July from Dh325.2 billion at the end of June.

Domestic credit began to slow down sharply after the 2008 crisis and ensuing debt default problems in the region. Credit growth stood at around two per cent in 2011 while it was negative in 2010 and nearly 1.9 per cent in 2009.

Growth was as high as 39.5 per cent in 2008 and nearly 38.5 per cent in 2007, when banks recorded one of their best financial periods.

UAE banks boosted their net income by nearly 18 per cent to Dh26.6 billion in 2011 from Dh22.5 billion in 2010 mainly because of higher net interest margins and a decline in interest and other expenses.

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