UAE mortgage credit growth slows

After soaring by around Dh74 billion through 2008, the total mortgage loans extended by the UAE's 24 national banks and 28 foreign units slowed to Dh15bn in the first 11 months of 2009, Central Bank figures showed.

This means growth in domestic mortgage credit dived from around 123 per cent during 2008 to only about 12 per cent during January-November 2009. Mortgage loan growth in the UAE sharply slowed down in 2009 as banks maintained their tight credit policies, official figures showed yesterday.

Poor investors' confidence because of a general downturn in the real estate sector and bank liquidity shortages also contributed to the plunge in mortgage credit growth as part of an overall slowdown in domestic loans.

Mohammed Al Asumi, a UAE-based economist, said: "There are several reasons for this slowdown in mortgage loans. Banks are still maintaining a cautious approach in general lending, including mortgage loans.

"The banking sector also has liquidity shortages while most banks have commitments, for which they have made large provisions. This has made them even more careful. Another factor is the real estate downturn, which has made investors reluctant to invest in property. All these factors contributed to the slowdown in mortgage loans but I don't think there are risks of a mortgage crisis in the UAE. We are past this now," he said. From around Dh56.4bn at the end of 2007, mortgage loans provided by the UAE's 52 banks leaped to nearly Dh125.8bn at the end of 2008, the largest annual increase in the country's banking history.

Mortgage loans increased to around Dh140.5bn at the end of November 2009 and the bulk of the growth was in the first eight months of the year, according to the Central Bank November bulletin, which showed such loans edged up by only around Dh3bn during September-November.

Personal loans were another victim, with those for business purposes rising by only around Dh10bn in the first 11 months of 2009 compared with an increase of nearly Dh54bn in 2008. Personal loans for consumption purposes shrank slightly after leaping by nearly Dh26bn in 2008.

The decline in mortgage and personal loan growth is part of a general slowdown in domestic credit in the UAE and other Gulf oil producers following the global fiscal slowdown and festering regional debt default problems.

The figures showed total credit in the UAE grew by only around 4.6 per cent in the first 11 months of 2009 compared with 47.6 per cent in 2008.

Fadi Kiswani of the Sharjah-based Al Sharhan Securities, a key UAE real estate and stockbrokerage firm, said: "There has been a sharp downturn in the real estate business this year because of investors' fear and lack of confidence, and the fact that banks are no longer as generous as before.

"Banks are now making conditions very difficult for giving a loan while the investors themselves no longer have the same appetite for property loans because of the decline and the uncertainty in the sector. There is some activity in the property sector but the real estate boom is over. Despite the rise in oil prices, I think another property boom will not come for next 10 years."

Lower credit, allied with high bad debt provisions, depressed the net earnings of the UAE banks in 2009 despite strong general performance. The country's banking sector, the largest in the Arab world, made record provisions for non-performing loans of around Dh12.9bn following its exposure to the troubled Saudi family businesses of Saad and Algosaibi.

While the analysts ruled out a US-style sub-prime crisis in the UAE, they warned the recent decline in property prices within a post-crisis correction process could render many developers unable to repay debt on time.

Ziad Dabbas, financial analyst at the government-controlled National Bank of Abu Dhabi, said: "The banks' net profits could have been higher but you have to take into consideration another issue, which could prompt them to embark on another wave of provisioning, which is a possible default problem in the real estate sector."

Dabbas noted that the UAE banks had lent generously to the real estate and construction sectors in late 2007 and the first eight months of 2008 before they were hit by the global credit crisis in mid September 2008.

"I am not saying we are on the verge of a sub-prime crisis, but some property agents and developers could default on loans provided by the banks or have already defaulted. This means banks could have placed some accounts under tight control or even started to make provisions against such defaults."

Despite the slowdown in 2009, the share of mortgage loans of total credit swelled to around 14.4 per cent at the end of November from 8.9 per cent at the end of 2008. Analysts attributed this to the slower growth in total credit.

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