Thursday, Oct 20, 2016

Abu Dhabi: Demand for both business credit and personal loans slowed down across the UAE in the third quarter of this year amid ongoing tightening of credit conditions, according to a survey by the Central Bank of the UAE.

Results from the survey showed a downward trend in overall credit appetite, with the tightening for business loans suggesting reduced willingness to extend loans among banks and lenders. Such aversion reflects the banks’ outlook towards a slower growth path.

The Central Bank said this was the second time that business loan demand dropped into negative territory since the survey was launched. Respondents said they also expect tightening in credit standards in the fourth quarter of this year, though to a less extent than reported in the third quarter.

“By market segment, easing in demand was most notable among Small and Medium Enterprises [SMEs] and non-residents. Loan demand for expat and Islamic finance also softened. On the other hand, there was a modest demand growth for local, large firms, conventional loans, and GREs [Government-Related Entities],” the report stated.

It added that survey respondents attributed customer sales, property market outlook and fixed asset investments as the main factors behind the slowdown in demand for business loans.

In terms of lending to individuals, demand for personal loans also eased in third quarter compared to the second quarter, recording the lowest reading since the survey was launched. The decline in demand was evident across all emirates and most significant in the Northern Emirates.

The report from the Central Bank comes as banks in the UAE report slower growth, with some even reporting negative growth, due to tighter liquidity conditions.

On Monday, Union National Bank released its financial statement for the third quarter, which showed decline in both operating income and operating profit. The bank said this was mainly due “higher cost of term deposits at the back of tighter liquidity conditions in the market.”

With most listed banks are expected to release their results next week, analysts said data so far suggests tighter liquidity conditions and higher impairments will take a toll on earnings.

Respondents to the Central Bank’s survey said financial markets outlook was the most important reason behind the drop in loan demand, along with housing market outlook and change in income.

The Central Bank said that, with the exception of credit cards, demand for personal loans slowed across all categories, most notably among car loans and non-housing investments.

By Sarah Diaa Staff Reporter

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