UAE bank loans touch two-year high in August

UAE banks lavished nearly Dh9 billion in credit in August and analysts said they were puzzled by such an increase, the largest in nearly two years.

From around Dh1,025 billion at the end of July, total loans extended by the country’s 51 banks swelled to nearly Dh1,034 billion at the end of August, according to figures released this week by the Central Bank.

It was the biggest monthly credit average to be provided by local banks since they introduced curbs on lending after they were jolted by the 2008 global fiscal distress and came under pressure by the Central Bank to be more careful.

Lending tightness was aggravated by the fact that most private sector establishments lost their appetite for loans because of economic uncertainty, which prompted them to delay new projects and put expansion plans on hold.

“I think the increase in the banks’ credit in August is substantial and massive by all standards…I can’t remember such a big monthly increase in nearly two years since the global crisis erupted,” said Ziad Dabbas, financial adviser at the government-controlled National Bank of Abu Dhabi.

“But I can’t say it is an indication of something or a trend that the banks are back to their normal credit activity….there are no details in the Central Bank report about these loans….I myself surprised by this increase but we have to see the details of the loans in order to know what they indicate,” he told Emirates 24/7.

Dabbas said the rise showed August was an exceptional month but added the country’s 23 national banks and 28 foreign units have not shown any tendency to fully end their lending tightness policy.

“The private sector is also not borrowing much…on the contrary, it is putting its money in banks in the absence of major expansion plans or new projects…perhaps, these loans in August went to the government or government-related entities but we still do not know.”

The increase in domestic credit in August of around 0.8 per cent followed a slight decline in July and is nearly double the Dhfour billion rise recorded in June.

UAE banks have joined other banks in the Gulf in squeezing their credit lines following the global distress and debt default crises in region.

Domestic credit in the UAE grew by only around 1.6 per cent in the first eight months of 2010 and growth was as slow as 2.4 per cent through 2009. The slowdown followed a peak lending period during 2007-2008, when domestic credit leaped by an average 30 per cent.

“I don’t know why there was a big increase in August,” said Fadi Kiswani from the Sharjah-based Alsharhan Securities, a key UAE stockbrokerage and investment firm. “Perhaps it could have been lent to the public sector because banks appear to have become more selective in their lending operations as they give priority to the public sector and private institutions with government shareholding.”

Credit to the government soared by Dh40 billion in the first 10 months of 2009 as banks sought to offset a sharp slowdown in lending  to the private sector.

Loans and advances to the government swelled by around Dh17 billion while those to other public establishments leaped by around Dh23 billion.

In contrast, lending to the private sector slumped by nearly Dh16 billion in the same period, according to the Central Bank.

Credit to both sectors slackened later, with loans to the government edging up to Dh92 billion at the end of June from Dh91.8 billion at the end of 2009. Loans to the private sector shrank to Dh592.9 billion from Dh607 billion.

Tight lending allied with a sharp increase in loan loss provisions depressed the net income of country’s national banks by more than 20 per cent to around Dh14.87 billion in 2009 from Dh18.7 billion in 2008.

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