Private sector credit picks up

Bank credit to the UAE private sector picked up in January as banks are gradually shedding their risk aversion after building up enough provisions to counter fresh financial problems in the future.
Official data showed lending to the government and other public sector establishments also maintained their steady growth while banks appear to be still hesitant to re-open their coffers to individuals.
From around Dh581.6 billion at the end of 2010, credit by the country’s 23 national banks and 28 foreign units grew to nearly Dh584.6 billion at the end of January, an increase of around 3.6 billion, the central bank figures showed.
The increase followed a decline by nearly Dhfour billion in the previous month and a rise of about Dhthree billion in October.
In 2010, credit to the private sector shrank by around 4.3 per cent while there was a decline of nearly 4.2 per cent in the previous year.
The decline over the previous two years followed a sharp rise through 2007 and 2008, when credit to the private sector raced by 42.9 and 41 per cent respectively because of strong domestic demand during the oil boom.
The report showed banks’ credit to the less risky government and public sector had not been largely affected by the 2008 global financial crisis and regional debt default problems. From around 99.9 billion at the end of 2010, lending to the government rose to Dh101.1 billion at the end of January.
The increase extends a steady growth in such lending over the past years as it gained around Dhnine billion through 2010 and Dh18 billion in 2009.
Credit to other public sector establishments edged up by around Dh100 million through January, according to the report.
It showed credit to public financial institutions plunged by around Dheight billion to Dh9.5 billion at the end of January but there was a surge of around Dh12 billion in credit to “other” public sector establishments.
Personal loans appeared to be the main victim of banks’ lending downturn over the past months, slipping to around Dh247.3 billion at the end of January from nearly Dh247 billion at the end of 2010.
The decline was caused by a contraction in personal loans for consumption purposes, which fell to Dh64.5 billion from Dh65.2 billion. Personal loans for business purposes edged up to Dh182.8 billion from Dh191.9 billion.
Personal loans had recorded massive growth before the 2008 financial crisis jolted banks and forced them to tighten their coffers.
From around Dh28 billion at the end of 2006, personal loans for consumption purposes jumped to Dh42 billion at the end of 2007 and Dh67 billion at the end of 2008. they slipped to around dh66.5 billion at the end of 2009 and edged down further to Dh65.2 billion at the end of 2010.
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 Dh34 billion to Dh242 billion at the end of January from Dh208.1 billion at the end of 2009. the bulk of the increase was in their deposits with foreign banks as they surged to around Dh80 billion from Dh55.5 billion at the end of 2009.
Heavy exposure by the UAE banks to defaulting firms has triggered a massive provisioning drive, with their loan loss provisions soaring to nearly Dh45.8 billion at the end of October from Dh19.7 billion at the end of 2008.
High provisions allied with a steep fall in credit to adversely affect the banks’ performance through 2009 and most of 2010.
Balance sheets of 16 listed national banks showed their net profits plunged by around 20.6 per cent to Dh14.87 billion in 2009 from Dh18.71 billion in 2008. But earnings recovered by nearly 10.6 per cent to Dh17.6 billion in 2010.
In the first quarter of 2010, the net profits of 14 national banks that have released results grew by around 4.7 per cent 5.72 billion from Dh5.46 billion in the first quarter of 2010.
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