Mortgage credit slumps in 2011

Real estate mortgage credit provided by UAE banks nearly came to a standstill in 2011 after recording double digit growth before the 2008 global fiscal distress and modest growth after the crisis.

The decline was part of a general slowdown in lending by the country’s 23 national banks and 28 foreign units last year as they kept up a drive to build up bad debt provisions.

After nearly doubling in 2007 and more than doubling in 2008, mortgage loans grew by around 11.9 per cent in 2009 and nearly 15.6 per cent in 2010 before they slumped in 2010.

From around Dh163.18 billion at the end of 2010, mortgage credit extended by the UAE-based 51 banks dipped to nearly Dh161.5 billion at the end of 2011, the Central Bank said in a report.

It was the first negative real estate loan growth in many years and it was part of a general slowdown in lending by UAE banks following the global crisis and regional debt default problems in 2009.

The Central Bank’s monthly bulletin issued this week showed total credit to the private sector also slumped to around Dh573.2 billion at the end of 2011 from about Dh581.2 billion at the end of 2010.

The decline extended a credit downturn recorded in 2010, when loans dipped to Dh581.2 billion from Dh607 billion. Lending to the private sector also shrank in 2009 from around Dh630 billion.

The fall over the past three years was in contrast with previous boom lending years, when domestic credit to the private sector shot up by nearly 41.2 per cent in 2008 and 42.9 per cent in 2007.

The report showed banks remained risk-averse and selective in their lending activity, with preference of the safer public sector.

Loans to the government grew to around Dh102.4 billion at the end of 2011 from Dh99.99.9 billion while credit to the public sector soared to around Dh112.4 billion from Dh91.3 billion.

Sector-wise, lending was scant to most sectors with the exception of the hydrocarbon sector, where credit more than quadrupled to nearly Dh27.9 billion at the end of 2011 from Dh6.7 billion at the end of 2010. It was the highest growth in bank credit to that sector in many years and the report gave no explanation for that surge.

Credit to the manufacturing sector remained almost unchanged at around Dh45 billion while lending to the construction sector dipped to Dh116 billion from around Dh122 billion after recording negative growth in 2010 and high growth in the previous three years.

Credit to other sectors also recorded negative growth while personal lending for business purposes edged up slightly to around Dh182.9 billion from Dh181.9 billion. Personal loans for consumption purposes swelled to around Dh69.1 billion from Dh65.1 billion.

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