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29 March 2024

Sharp boost in personal loans

Personal loans given by UAE banks amounted to Dh16bn in the first nine months. (FILE)

Published
By Nadim Kawach

UAE banks boosted personal lending by more than Dh16 billion during the first nine months of 2010 to largely surpass total credit extended to individuals through 2009, according to the Central Bank.

The surge is in sharp contrast with the dormant lending activity in other sectors and analysts attributed this to the fact that banks are still risk-averse towards long-term lending and relatively weak demand for credit by the private sector.

From around Dh171.3 billion at the end of 2009, personal loans for business purposes surged by nearly Dh16.7 billion to Dh188 billion at the end of September, the Central Bank said in its latest monthly bulletin.

But personal loans for consumption purposes remained stagnant as it edged up slightly from around Dh66.56 billion to Dh66.57 billion in the same period.

The increase in personal lending for consumption this year was far higher than that recorded through 2009, when such loans grew by around Dh11 billion.

The figures showed the UAE’s 23 national banks and 28 foreign units have maintained their tight credit policy towards the private sector following the 2008 global fiscal distress and regional debt default problems. Private sector institutions are also believed to be still less demanding for credit because of relative uncertainty, default crises and a slowdown in expansion plans.

Credit to the private sector has remained weak since the end of 2008, slumping from around Dh630 billion at the end of that year to Dh607 billion at the end of 2009. It dipped further to nearly Dh588.8 billion at the end of September.

The private business and industrial sector was the main victim of the decline, with loans in this sector slumping from around Dh355.2 billion at the end of 2009 to nearly Dh331.5 billion at the end of September, the figures showed.

In contrast, banks and other financial institutions still appeared with strong appetite for credit as it rose to around Dh58 billion from Dh51.2 billion.

Credit to the government also increased to around Dh99.5 billion at the end of September from Dh91.8 billion at the end of 2009 as the less risking public sector remains the favorite target of banks in their lending activity.

Sector-wise, most other sectors were affected by the lending stagnation, with credit to electricity and water falling from around Dh24.8 billion to Dh24.4 billion and to trade from about Dh100.4 billion to Dh98.6 billion.

Loans to the manufacturing sector grew slightly from about Dh44.2 billion to Dh46.5 billion and to construction from Dh126 billion to Dh128.2 billion. Growth in credit to both sectors was a tiny fraction of that recorded during the two years which preceded the crisis as they jumped by at least Dh60 billion.

Other loans, including credit to the services sector and non-profitable institutions, dropped from around Dh212.1 billion to Dh207.2 billion in the same period.

The report showed the surge in personal loans boosted total credit by the 51 banks from around Dh958.6 billion to Dh979.2 billion.

To offset waning credit activity at home, UAE banks have turned abroad for investment, with their foreign assets swelling from around Dh208.1 billion at the end of 2009 to nearly Dh226.2 billion at the end of September.

The bulk of the increase was in their deposits with banks abroad as they surged from about Dh55.5 billion to Dh73.5 billion, their highest ever level.

Their foreign liabilities also swelled from nearly Dh251 billion to around Dh266.3 billion, retaining the banking sector’s status as a net debtor, with its net foreign assets recording a deficit of around Dh40.1 billion at the end of September.