Demand for loans cooled in the fourth quarter of 2014, but it is expected to rebound in the first three months of this year, according to data released by the Central Bank yesterday.
It shied away, however, from speculating as to the reasons behind the slowdown even though in the last three months of the year the price of oil plunged more than 30 per cent. There was a similar decline in the UAE’s main stock indexes.
Despite the slump, the results of the Central Bank’s survey of all the country’s lenders showed robust demand in credit in the second half of 2014, with two-thirds of respondents expecting a pick-up in demand during the first quarter of this year. In the fourth quarter, however, its so-called net balance measure for credit demand (the weighted percentage of respondents reporting higher demand for loans minus the percentage reporting lower demand) fell to +29.6 from +33.6 in the quarter that ended in September.
Most of the decline in demand was from Abu Dhabi and the Northern Emirates and was due in part to a dip in construction and property loans, the bank said.
"It should be noted, however, that such weakness could be seasonal and not reflective of underlying economic conditions," the Central Bank said in its first quarterly report on credit sentiment. "Therefore, a degree of caution is required in interpreting such results."
Still, most economists have been downgrading forecasts for UAE economic growth because of the drop in crude prices, which the federal government relies on for 60 per cent of its budget spending. Since June, the commodity had shed almost 60 per cent of its value amid a supply glut triggered by increased production from countries such as the US and a decrease in demand from emerging markets such as China. The UAE is the world’s eighth largest producer of crude.
As a result, banks including Standard Chartered and HSBC have lowered their growth forecasts following a couple of years of buoyant growth.
The UAE economy is expected to grow 3.8 per cent in 2015, slowing from 4.5 per cent in 2014, according to Shady Shaher, a Dubai-based senior Middle East and North Africa economist at Standard Chartered.
The rating agency Moody’s said at the end of November, however, that it was not too concerned about declining oil prices having a big impact on GDP growth in 2015 because of the large amount of cash reserves the country has built up. It estimates the economy grew about 4 per cent in 2014. As a result, it has maintained its credit outlook for UAE banks at stable for the next 12 to 18 months.
UAE banks have been the biggest beneficiaries of that economic resurgence as corporations and individuals took bank loans for everything from refinancing old debt to new homes and cars. But because interest rates are low, this has meant banks – of which there are more than 50 servicing a population of 9 million in the UAE – have had to vie for clients and search for other ways to make money apart from the interest they earn on loans.
Most bankers in the UAE say they are not concerned about rising credit growth and point to measures apart from the credit bureau, such as higher down payments for mortgages, as evidence the authorities are making sure that loans do not spiral out of control, as happened before the country’s 2009 debt crisis.
In 2013, loans grew 9 per cent and analysts expect that figure to be about 10 per cent for 2014. Credit grew 41 per cent in 2008, according to figures from the Central Bank.
mkassem@thenational.ae
Follow The National's Business section on Twitter
