Reduced loans hold back credit in UAE

UAE credit expansion failed to pick up speed in April as growth in bank lending to the government sector shrank.

Outstanding loans to the private sector reached Dh821 million (US$223.5m) in April, up 2.6 per cent from the same month a year earlier, data released yesterday from the Central Bank's statistical bulletin showed. It was about the same growth rate as the month earlier.

Viewed as less of a credit risk than private businesses, lending to public sector enterprises has been a cornerstone of banks' growth plans since the global financial crisis. But the rate of annual growth eased to 10.5 per cent to reach Dh123.4m in April, sharply down from lending levels in the first quarter.

"Since April the macro-economic environment in the UAE has been good but low credit growth is one of the reasons why there's been a lid on economic growth," said Liz Martins, a senior economist in the Middle East and North Africa at HSBC.

The data signals a continuation of the tepid credit growth that has hampered the economy following the global financial crisis of 2009. The preoccupation of banks with clearing out non-performing loans and putting aside cash to guard against further risks mean lending has lagged behind double-digit rates of credit expansion in Saudi Arabia and Qatar.

Other data from the regulator showed a 0.6 per cent rise to Dh139.7m in foreign currency deposits during April from the same period a year earlier.

On a monthly basis, the deposits dipped for the first time since at least December. Dirham deposits fell 3.8 per cent to Dh433.4m in April from the same month a year earlier.

"This trend likely continued in May and June as overall quasi-money growth was increasingly negative in the second quarter," wrote Khatija Haque, a senior economist at Emirates NBD, in a research note released yesterday.

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