The number and size of personal loans in the UAE is unlikely to increase during 2011 in accordance with a conservative approach to retail lending by the UAE Central Bank, analysts have said.
The amount of credit given to individuals is expected to stay low following tighter regulations issued by the financial regulator in February, despite signs of revival and improved liquidity in the OPEC member’s banking system.
“I don’t think we are going to see a rise in the number of personal loans after the circular that was sent out by the Central Bank earlier this year,” said John Tofarides, an analyst at Moodys bank.
“Also, banks don’t like to give unsecured loans to expats, they would rather give them to nationals who work for the government and who are unlikely to lose their jobs.”
During the boom years, a trend of chaotic consumption in the Gulf state induced enviable rates of growth among the region’s leading lending institutions.
Record-high oil prices coupled with a five-year property surge saw borrowing in the UAE rocket 30 percent annually between 2005 and 2010.
But under the weight of the financial crisis, UAE banks were left exposed to the fallout from Dubai’s debt troubles, and were forced to curb lending and set aside extra funds to meet loan losses.
According to Central Bank data, lending by UAE banks increased just 1.3 percent in 2010 compared with 2.4 percent in 2009.
In line with these trends, just 38 percent of respondents to the UAE debt survey commissioned by Arabian Business said they had a personal loan.
“We believe the borrowings of many retail banking customers will be above the new limits [set by the UAE Central Bank], which effectively precludes them from taking on more debt,” said Rahul Shah, a financial analyst at Deutsche Bank.
“Also, the experience of other markets where borrowing limits have been tightened, such as Saudi Arabia, suggests that consumer credit growth is subsequently subdued.”
A recent survey by the Boston Consulting Group revealed that profits across 35 Middle East banks increased significantly last year due to lower loan provisions, which dropped 17 percent in 2010 to $8billion.
Boosting bank profits further has been a growth in customer deposits, up 21 percent between September 2008 and December 2010.
In February, the senior director of the UAE central bank’s treasury department Saif al-Shamsi said banks were now in a good position to tackle any new challenges.
However, the head of HSBC in the UAE, Abdulfattah Sharaf, said the new lending rules which have capped personal loans could hurt the Gulf state’s biggest lenders.