Bank credit to real estate shrinks

Overall bank loans rise slightly in first five months

Bank credit to the UAE real estate sector lost steam it gained through 2010 and dropped by around 1.4 per cent in the first five months of 2011 as the sector appears to be still reeling under the 2008 global fiscal crisis.

The current political unrest in the Middle East and North Africa also seems to have allied with the post-crisis tightness by UAE banks’ to keep overall credit growth at low levels despite acceleration in the country’s GDP growth.

Figures by the central bank showed the slackening growth in lending to real estate and other sectors was in sharp contrast with the massive rise in deposits with banks as they swelled by more than Dh75 billion in the first five months.

From around Dh163.1 billion at the end of 2010, real estate mortgage credit receded to about Dh160.9 billion at the end of May, the figures showed.
The decline followed a recovery in such loans by around Dh22 billion through 2010 compared with nearly Dh16 billion in 2009, when the sector was hit hard by the 2008 crisis after years of boom caused by high oil prices.

Mortgage lending activity hit an all time high during 2008, when credit leaped by nearly Dh69 billion from Dh56.4 billion at the end of 2007 to Dh125.8 billion at the end of 2008, a staggering increase of about 123 per cent.

The activity was also at its peak through 2007, when real estate credit nearly doubled to around Dh56.4 billion at the end of the year.

The report showed total resident loans edged up by around 0.5 per cent to Dh776.4 billion at the end of May from Dh772 billion at the end of 2010.

Credit to the government slipped to Dh98.9 billion from Dh99.9 billion after a steady rise over the past year while resident loans to the private sector declined to Dh577.7 billion from around Dh581.2 billion. Lending to the public sector surged to about Dh99.7 billion from Dh91.3 billion despite a sharp fall in credit to public financial institutions to Dh10.5 billion from Dh17.3 billion.

The report showed that decline was offset by a sharp rise in credit to “other public establishments” to Dh89.1 billion from Dh73.9 billion.

Personal loans for business purposes receded to around Dh180.9 billion from Dh181.9 billion and personal loans for consumption purposes to nearly Dh64.7 billion from Dh85.1 billion in the same period.

The report showed deposits with the country’s 23 national banks and 28 foreign units swelled by around Dh75 billion to reach a record high of Dh1,123 billion at the end of May from Dh1,049.6 billion at the end of 2010. New monthly data showed deposits hit a new record of Dh1,126 billion at the end of June.

All the increase was in resident deposits, which surged to nearly Dh1,006 billion from Dh929.2 billion in the same period. Non-resident deposits shrank to nearly Dh117 billion from Dh120.3 billion, according to the report.

A breakdown showed resident government deposits with banks gained around Dh25 billion to reach Dh208 billion while private sector deposits swelled by nearly Dh28 billion to reach Dh408 billion compared with Dh380 billion.

The banks’ total assets jumped by nearly D7 billion to reach Dh1,706 billion at the end of May compared with about Dh1,609.2 billion at the end of 2010.

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