Lending cools as banks become more selective

A drop in personal lending contributed to credit growth retreating in July.

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Loans and advances fell by 0.4 per cent to Dh1.05 trillion (US$285.86 billion) compared with the previous month, data yesterday released by the Central Bank showed.

Personal loans to residents dropped by 0.5 per cent to Dh246.7bn over the same period.

"Loan growth continues to be soft," said Jaap Meijer, the head of banks research at HC Securities in Dubai.

"We believe Dubai banks continue to drag growth despite the better growth dynamics of their Abu Dhabi counterparts."

The data provides further evidence of UAE credit growth trailing other regional economies. Loan growth for the first seven months of the year stands at 2 per cent, compared with 8.7 per cent in Qatar and 6.2 per cent in Saudi Arabia.

Banks have been growing their lending books at a more measured pace since the global financial crisis prompted a build-up of bad debts on many lenders' balance sheets. The trend of increased selectiveness about lending has been supported by new Central Bank borrowing rules.

In May, the Central Bank brought in caps on retail lending, including limiting the amount banks can lend to customers at 20 times their salary.

The period of loan repayment was also set at 48 months.

Signs of the hangover from the global financial crisis remain within the banking system.

Specific provisions for non-performing loans rose 2.3 per cent to Dh48.4bn in July, data showed. General provisions also edged up 5.6 per cent to Dh15.1bn.

Provisioning for non-performing loans are expected by many analysts to peak this year before beginning to improve.

Other pressures emerged last month within the banking system, the data showed. Deposits declined 1.1 per cent to Dh1.13 trillion.

Deposits have grown 6.1 per cent so far this year.

Other indicators suggest a strengthening outlook for banks. The loan-to-deposit ratio for banks has fallen to 94 per cent.

The total capital adequacy for banks rose to 21 per cent in June, from 20.7 per cent at the end of the first quarter.