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Borrowing rises as UAE growth outlook remains bright: Central Bank report


Individuals and businesses in the UAE borrowed more in the second quarter of 2022 as an improving economic outlook boosted demand, the UAE Central Bank said in a recent report, and a stronger increase in lending is scheduled for the September term.

Lending remained strong despite recent interest rate hikes, the apex bank said in its second-quarter credit sentiment survey.

Businesses across the emirates, especially large corporations, borrowed more across all categories as business was boosted by improved customer spending. The retail and wholesale sector was a shining example, where strong sales and improving real estate and economic prospects boosted business owner confidence. Transportation and warehousing, manufacturing and construction are among other sectors that have seen strong demand for loans.

In terms of credit availability, an increase in the willingness of banks and financial firms to lend to businesses has been observed, supported by a change in the creditworthiness of potential borrowers and risk tolerance, and an improvement in asset quality.

Personal borrowing increases

The survey results revealed an increase in consumers’ appetite for credit in the June quarter. The increase in demand was evident in all categories of loans except auto loans and loans related to home refinancing and renovation, the central bank said.

Strong demand for housing-related loans (such as homeowner and investment loans) and credit cards was evident, indicating strong domestic demand.

The growth in demand was driven by increased demand for personal loans across all emirates during the quarter, particularly in Abu Dhabi.

The main factors responsible for stimulating a positive development in demand for personal loans were the outlook for the housing market, the development of incomes and the outlook for the financial market.

In the first quarter, demand for personal loans recorded the largest quarterly increase since 2014 due to improving economic conditions.

In terms of willingness to lend, there has been a substantial increase in the appetite for providing personal loans. Solid loan demand coupled with a strong willingness to lend is expected for the September quarter, according to the report.

According to the survey results, 36.9% of respondents reported no change, 57% reported an increase in demand, while only 6.1% of respondents reported a decrease in demand. By emirate, the survey results suggest a notable increase in credit appetite and demand for business loans across all emirates, with demand strongest in Dubai.

Strong Q1

Lending remained strong in the first quarter, even as interest rates rose in line with global market movements, the central bank said in its quarterly economic review. The central bank’s main policy rate, the base rate, rose 25 basis points to 40 basis points on March 17, in line with the US Federal Reserve’s hike.

Overall, bank lending rebounded 4.4% year-on-year, reflecting improving credit sentiment.

Gross credit amounted to 1,832 billion Dh at the end of March 2022, against 1,794 Dh in December 2021.

Domestic credit (89.5% of total loans) increased by 3.1% compared to the previous year period. The figure stood at 1.639 billion dirhams in the March quarter, compared to 1.619 billion dirhams in the previous quarter, according to the data.

Financially strong

The UAE banking system remained well capitalized, with an overall capital adequacy ratio of 17.1%, a Tier 1 capital ratio of 16% and a Tier 1 capital ratio of 14 .2%. The eligible liquidity ratio, reflecting the liquidity of the banking system, stood at 19% at the end of the first quarter of 2022, well above the minimum regulatory requirement of 10%.

Total deposits in UAE banks stood at over 2 trillion dirhams at the end of March 2022, up 6.6% from a year ago. Deposits amounted to 1,997 billion dirhams at the end of December 2021.