Small traders need more bank support

The Government has urged banks to boost lending to small businesses after it emerged they account for just 2 per cent of total lending across the Gulf. It follows a study by the World Bank that said only one in five small and medium-sized enterprises (SMEs) in the MENA region had access to direct lines of credit or loans. "We need to see many more GCC nationals move into the SME sector and start new businesses rather than contemplating only public-sector jobs," said Khalid Ali al Bustani, an executive director at the Ministry of Finance. "Though GCC banks regard the SME segment as potentially profitable, there has not been a concerted effort to encourage lending to them and diversify the financial infrastructure," he said.

Lending to large corporations was "reaching saturation levels", he said, adding that increasing credit toSMEs would help to diversify banks' investments and improve their bottom line. "It is especially important in the UAE where we have increased the size of our non-oil economy year-on-year," Mr al Bustani said. The World Bank report said that due to the energy-focused nature of economies in the region, banks' lending to small businesses accounted for only 2 per cent across the GCC, compared with 14 per cent elsewhere.

"These levels are substantially lower than in both the developing and developed countries and are below the banks' own long-range lending targets, which stand at 12 per cent in the GCC," the report said. According to the UAE Central Bank, loans, advances and overdrafts in the private sector were worth Dh541 billion (US$147.28bn) in June, excluding mortgages and commercial bills. That was down by Dh49bn on the same period the previous year, which Dr Giyas Gokkent, the chief economist at National Bank of Abu Dhabi, said was due to banks' reduced risk appetite and tightened liquidity through the banking sector.

"SMEs … [are] one of the niches that banks want to focus on," said Sofia el Boury, a banking analyst at Shuaa Capital. [e-mail]