Banks in UAE resorting to customer-snatching

Banks in the UAE are back in mortgage lending, but not really in the way they should be, by offering new mortgages to new customers.

Instead, they are now trying to lure existing and paying mortgage customers from one another by offering a small discount on their payment rates.

“Over the past quarters, banks have halted their new loan origination across all sectors yet more specifically to sectors delineated as high risk namely real estate and naturally mortgages,” Ghida Obeid, Associate – Equity Research, Commercial Banks and Diversified Financials, Shuaa Capital, confirmed to Emirates 24|7.

“Fearing a further erosion of asset quality, largely connected to the lagged effect of real estate price corrections, most banks in the region have reined in credit extension and are adopting a wait-and-see attitude,” Tristan Cooper, Head Analyst for Middle East Sovereigns at Moody’s office in Dubai, writes in Moody’s Investors Service’s just-published mid-year update to its Middle East Sovereign Outlook.

Data analysed by Moody’s shows that, regionally, bank credit to the private sector has inched up since its nadir in the last quarter of 2009. “However, the recovery is incipient and rather insipid,” Cooper writes.
“Year-on-year private sector credit growth in April remained very weak in the UAE, Saudi Arabia, Jordan and Egypt,” he says.

However, agents at various banks in the country are busy contacting customers with a clear payment record, asking them to switch mortgages to their banks and are offering discounted payments to lure such ‘safe’ clients.

“With absent new mortgage loans and maturing existing ones, banks were attempting to uptake other banks’ mortgages, especially the ones with good credit history, by providing incentives such as discounts,” says Obeid.

This way, while still in a risk-averse mode, they can put to use their pile of cash that isn’t currently paying much return.

“The reasons behind this is that mortgage rates lie on the upper end of the yield curve and as such mortgage loans are utilised to optimise the asset mix to support interest margins yet more importantly the long tenor of mortgage loans resemble the necessary investment for banks to manage their asset liability gap,” Obeid explains.

While this may well work for the banks, in effect it doesn’t add to the existing mortgage market, with merely the existing mortgages changing hands and no fresh issuance.
Analysts, in fact, do not expect banks to offer fresh mortgages anytime soon.

“Given that during H1 2010, the banking sector loan book barely increased along side the fact that banks remain risk averse and prudent in their lending approach on fears over potential future losses and write-downs, we do not see fresh mortgages hitting the market anytime soon,” Shuaa Capital’s Obeid points out.

The domestic mortgage market, therefore, which has stagnated in the wake of declining property prices, is expected to remain depressed in the near future.

“Unfortunately, this is further aggravated by the fact that the country’s specialised mortgage providers Tamweel and Amlak remain struggling to find a resolution for their prolonging merger and as such are in no current position to provide material support to the growth recovery of the domestic mortgage market,” Obeid concludes.

Follow Emirates 24|7 on Google News.