The rising cost of living is stoking demand for short-term loans to service rent and school fees, according to United Arab Bank (UAB).
Demand for 12-month loans is especially being boosted by recently arrived expats who typically face cash flow problems, said Tony Graham, the head of retail banking at UAB.
"This is the only place I've ever lived where landlords ask for one, two or three cheques for the whole year's rent," said Mr Graham, a former HSBC executive who joined UAB in August 2013.
“For most of us it is the single most expensive expenditure all year.”
“And if you have children, when the dreaded email arrives from school and the PDF arrives, we all shudder,” he added.
In the past two and a half years, UAB’s retail banking assets have grown about 50 per cent on the back of providing competitive borrowing rates to salaried professionals while refraining from spending money on gimmicky advertising, Mr Graham said.
Over the past 12 months, demand for mortgages has slowed to single-digit growth from double-digit growth in the previous year as house prices become difficult to afford, the executive said without wishing to be drawn into specific figures. Meanwhile, rents have been rising. Housing rents in Abu Dhabi alone rose by 12 per cent last year and another 2 per cent in the first quarter of this year despite the oil price retreat, according to according to data from the property broker CBRE.
Senior bank executives in the UAE, including the chief executive of Abu Dhabi Islamic Bank, Tirad Al Mahmoud, have been warning that a sharp rise in property prices in the past couple of years will make the country a less attractive place to do business.
But while the drop in the price of oil, a commodity on which the UAE relies heavily to fund its budget, has fallen more than 40 per cent over the past year, there have been some silver linings as the Government makes more of an effort to diversify and promote small businesses.
Because of government advocacy for SMEs, there has been a flourishing of credit flowing into these businesses and UAB says it has benefited from that. And so far the Government has not stopped any major infrastructure projects as a result of that decline in oil prices.
“The UAE has a large and growing number of self-employed people,” Mr Graham said.
“That’s a large and growing segment of the economy. People who are making things, which is great for the long-term development of the UAE and the authorities here are really encouraging that.”
“With respect to the oil price, sure there will be a knock-on effect throughout the region, but the companies that we talk to, that we provide payroll services to, their order books are filled for the next 18, 24, even 30 months and so the projects that they are committed to seem to be going ahead. What the oil price is going to be two years from now, who knows?”
mkassem@thenational.ae
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