UAE banks’ credit to the government and other public sector establishments sharply slowed in the first four months of 2010 after surging by nearly Dh19 billion through 2009, according to Central Bank data.
The slowdown combined with negative growth in loans to the private sector to depress total bank credit by around Dh5 billion during that period following a slight increase in 2009 and a boom lending in the previous year.
From around Dh91.8 billion at the end of 2009, loans and advances by the country’s 23 national banks and 28 foreign units edged up by only around 0.6 per cent to Dh92.4 billion at the end of April, the Central Bank figures showed.
The modest rise came after a 27 per cent leap in banks’ credit to the public sector during 2009 from around Dh72.2 billion to Dh91.8 billion.
Analysts attributed the slowdown to higher oil prices which sharply boosted government earnings and allowed it to fund immediate projects.
“Oil prices in the first four months of this year were much higher than the budgeted price of around $55…they averaged nearly $70, which means the government had enough surplus funds to finance urgent domestic projects,” said an economist at an Abu Dhabi-based bank.
Credit to the government was also very high through 2008, rising by around Dh14 billion despite strong oil prices. The increase was part of a lending boom by banks and strong domestic demand, mainly for public and private projects.
Total domestic credit by the country’s 51 banks jumped by nearly 39 per cent during 2008 but growth tumbled to only about 0.3 per cent in 2009.
The private sector emerged as the main victim of the credit slowdown last year and in the first four months of this year as banks became more risk averse and local companies lost appetite for finance because of economic uncertainty.
As a result, bank credit to the private sector dipped from Dh630 billion at the end of 2008 to Dh607 billion at the end of 2009. It further shrank to nearly Dh603 billion at the end of April, according to the Central Bank.
Private sector business and industrial sector was the main victim of the loan slowdown in the first four months of this year, with credit to this sector falling from Dh355 billion at the end of 2009 to Dh335 billion at the end of April.
Like in other Gulf oil producers, UAE banks have been hit by the 2008 global financial distress and ensuing regional default problems, prompting them to tighten their credit lines and work on improving their hurt asset quality.
The slackening credit activity at home has prompted region banks to look for other sources of income, including foreign markets.
The report showed UAE banks boosted their foreign assets by nearly Dh7 billion to Dh215 billion at the end of April from Dh208 billion at the end of 2009. The bulk of the increase was in their deposits with foreign banks as they surged to around Dh74 billion from Dh55.5 billion in the same period. Money at call and short notice, a profitable two-week investment, leaped from around Dh5.5 billion at the end of 2009 to Dh15.1 billion at the end of March before plunging to nearly Dh2.6 billion at the end of April, the Central Bank report showed.
Heavy exposure by the UAE banks to defaulting firms has triggered a massive provisioning drive, with their loan loss provisions soaring to a record high of Dh35.2 billion at the end of May from Dh19.7 billion at the end of 2008.
High provisions allied with a steep fall in credit to adversely affect the banks’ performance, with the net earnings of national banks dipping by about 1.14 per cent in the first quarter of 2010 and more than 20 per cent in 2009.
From around Dh5.566 billion in the first quarter of 2009, the consolidated net profits of the 19 listed national banks slumped to Dh5.502 billion in the first quarter of 2010, their balance sheets showed.
Analysts considered the results in the first quarter of 2010 as positive on the grounds they were far higher than the profits in the fourth quarter of 2009 and slightly lower than their level in the first quarter of 2009, which was better than the Q1 results in 2008 despite the oil boom that year.
Balance sheets of 16 listed national banks also showed their net profits plunged by around 20.6 per cent to Dh14.87 billion in 2009 from Dh18.71 billion in 2008.
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