UAE banks appear to have relaxed curbs on property loans and sharply boosted domestic mortgage credit in the third quarter, indicating the sector has started to recover from a devastating crisis in the wake of the 2008 global fiscal distress.
Mortgage credit extended by the country’s 23 national banks and 28 foreign units leaped by nearly Dh11 billion in the third quarter of 2012, a growth of around 4.4 per cent over the second quarter, central bank figures showed.
Growth stood at 4.8 per cent Y/Y, the largest quarterly increase since the credit boom during 2007 and most of 2008, according to bankers.
From around Dh240.6 billion at the end of the second quarter, total mortgage credit provided by the 51 banks rose to nearly Dh251.4 billion at the end of the third quarter, the central bank said in its third quarter bulleting issued on Monday.
The sharp rise followed a decline through 2011, when real estate lending dipped by 0.4 per cent to Dh239.6 million at the end of the third quarter from Dh240.6 million at the end of the second quarter of the same year.
The figures showed mortgage credit at the end of the third quarter of 2012 accounted for 22.7 per cent of the total domestic loans of Dh1,103 billion provided by the banks.
Mortgage credit recorded the second largest increase in loans in the third quarter after credit to the government, which swelled by 5.3 per cent.
Personal loans grew by only around one per cent to Dh261.7 billion from Dh259.2 billion while corporate lending edged down by 0.2 per cent.
Mortgage loans dropped by about Dhtwo billion through 2011 to reverse a steady growth over the past few years.
Mortgage loans in the UAE, the second largest Arab economy and a key OPEC oil producer, sharply slowed down during 2009 compared with 2008 as banks maintained their tight credit policies and chopped close to Dh13 billion off their balance sheets for bad debt, according to the central bank.
Poor investors’ confidence because of a general downturn in the real estate sector and bank liquidity shortages also contributed to the slackening growth in mortgage credit as part of an overall slowdown in domestic loans.
Mortgage credit nearly doubled to Dh56.4 billion at the end of 2007 compared with a year earlier. It also more than doubled through 2008 to end the year at Dh125.8 billion before growth started to slow down in the following years.
In a recent report, the central bank said the UAE faced the specter of a devastating mortgage crisis similar to that of the United States but managed to avert the problem thanks to strong government financial support.
It said real estate booms and busts can have far-reaching consequences for the banking system as was the case in the US savings and loans crisis in the 1980s, Japan and Sweden in the 1990s, and more recently the US subprime crisis.
“The UAE real estate market witnessed a similar pattern, a boom during 2005- 2007 followed by a bust in 2008,” it said.
“Fortunately banks avoided a major crisis largely because of the high concentration of the domestic development activity in the hands of UAE government-related institutions which benefited from the government support at a crucial time.
This has enabled the bust cycle to evolve in a controlled environment and limited the systemic spill-over.”
Just before the end of 2012, the central banks surprised banks and clients when it issued new rules capping mortgage loans in an apparent bid to forestall a fresh crash. Banks said they are in touch with the central bank to revise the rules.