Credit in UAE public sector grows while private sector dips

Public sector loan growth outpaced lending to the private sector during the first quarter, data released today by the Central Bank showed.

Public sector credit rose by 17.5 per cent at the end of March, compared to the earlier quarter and 52.15 per cent on an annual basis.

In comparison, lending to the private sector, including loans by non-bank financial institutions, dipped 1.3 per cent on a quarterly basis. Growth edged up by 0.4 per cent on an annual basis.

A drop in lending by non-bank financial institutions was the main driver for the weakness in private sector credit growth.

Credit growth in the UAE is picking up as a rebounding economy instils appetite among banks to lend and consumers to borrow. Total loans and advances rose by 2.8 per cent during the year up to April, according to previously released Central Bank data.

But economists have warned about reading too much into the latest figures because of a change in the way the Central Bank classified the data.

“Although the data is surprising, we do not read too much into it, as the Central Bank introduced new classification rules in the fourth quarter of 2013,” wrote Khatija Haque, senior economist for Mena at Emirates NBD, in a research note analysing the data.

The new rules changed the way the loans and deposits of government-related entities were classified. Previously included in the public sector category of the data, some were shifted to the private sector following the change. The change makes it tricky to accurately compare the latest figures with data up to last September.

The Central Bank has moved to try and contain the rate of lending to businesses with links to the Government to cut the risk of a repeat of the debt troubles that dogged the financial system during the global downturn. The regulator set limits in April 2012, capping the amount a bank could lend to government and related entities at 100 per cent of its capital base. Lending to a single borrower was curbed at 25 per cent.

Elsewhere within the data, there were signs of a pickup in consumer lending. Loans, advances, overdrafts and property mortgages accelerated by 16.4 per cent last to the end of March from the same previous quarter.

However, changes made to the classification of the data again made comparison with earlier periods difficult. The Central Bank said gross figures were reported for March, while data for previous months were net of provisions.

Loans, advances and overdrafts to residents rose 11 per cent last year, a rate many analysts expect to quicken this year as consumers take advantage of record low interest rates to borrow.

In an effort to control mortgage lending, the Central Bank last year capped home loans at 60 to 80 per cent of a property’s value, as well as 50 per cent for off-plan mortgages.

tarnold@thenational.ae