Bank lending growth expected to slow across Gulf

UAE bank lending growth slowed to 9.5 per cent year-on-year in December from 10.2 per cent in November, according to Central Bank data. Mona Al-Marzooqi / The National

Weaker economic growth driven by the low oil price is expected to slow regional bank lending growth to companies this year, say economists.

Credit growth slowed in the UAE and Saudi Arabia in December, while it accelerated in Qatar. Bahrain’s bank lending dropped in November.

Gulf Arab states are expected to record weaker economic growth following a more than 50 per cent fall in the price of oil since June to a near six-year low.

The IMF has forecast that the Gulf region will lose US$300 billion in oil export revenues this year owing to the oil price rout.

The IMF is forecasting growth of 3.4 per cent this year for the Gulf countries, lower than the 3.7 percent estimate last year.

“In Saudi and the UAE, lending has slowed as a result of moderating output,” said John Sfakianakis, regional director for the Gulf for London-based fund manager Ashmore Group. “Oil plays an important transmission role of adding liquidity but also providing revenues for governments. Naturally when oil prices fall so do oil revenues.”

UAE bank lending growth slowed to 9.5 per cent year-on-year in December from 10.2 per cent in November, according to Central Bank data.

“We think loan growth [in the UAE] is likely to slow this year, partly due to a high annual base. The pace of deposit growth did slow in the second half as oil prices declined, and if oil prices remain low then this could have an impact on liquidity growth this year,” said Khatja Haque, head of Mena research at the Dubai-based lender Emirates NBD .

In the UAE, lending to the construction sector in particular might be affected next year by a strengthening dollar that deters investments from Europe and Russia, and lower oil prices which impact income of Gulf investors.

“Dubai real estate prices could fall if the dollar continues to strengthen against major currencies. There are already signs of slowdown in sales,” said Alp Eke, senior economist at National Bank of Abu Dhabi.

“In addition, decreasing oil prices could have negative impact on investor sentiment, particularly from the GCC. GCC nationals constitute 30 per cent of Dubai Real Estate sales. This could also reduce the demand for loans.

“The banking system has improved liquidity and the banks are still cautious in terms of expanding lending activity. The risk appetite for banking sector is reduced as well. Also, the UAE central bank has stronger supervision and lending rules.”

In Saudi Arabia, the biggest Arab economy and the world’s biggest oil exporter, bank lending growth to the private sector decelerated to 11.8 per cent year-on-year in December from 12.2 per cent in November, according to central bank data.

“It [lending in Saudi Arabia] will be in the high single digits [this year],” said Mr Sfakianakis. “I don’t think it will creep up to levels that we have seen in 2014 and 2013 because the economy is slowing down and the appetite or the demand has slowed down.

“In the Gulf in general lending will be slowing down. Qatar may be the exception to that because Qatar has a lot of projects and they still have a lot of pent-up demand.”

December bank credit growth for Qatar, the world’s biggest exporter of liquefied natural gas, accelerated to 10 per cent year-on-year from 6.1 per cent in November, according to central bank data.

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