The country’s credit picture is becoming clearer: people are saving more and borrowing less, says a leading banker.
Demand for new personal loans and vehicle loans has dropped by up to 25 per cent year-on-year, said Suvo Sarkar, Emirates NBD’s head of retail banking and wealth management.
In an interview with The National, Mr Sarkar said: “We’re seeing a slowdown in demand for loans – whether it’s personal loans or auto loans, there’s definitely a slowdown.
“I think people are consuming less – whether it’s buying a car or buying anything for the house. That’s a reality and I think all banks are getting adjusted to the new numbers. Total loan offtake every month has definitely dropped off, I would say, by a factor of 20 to 25 per cent.”
Mr Sarkar said that falling demand explained part of the decline but the introduction of the UAE Credit Bureau about 12 months ago had also played its part.
“We started using it on day one – we were one of the anchor participants.
“Clearly, there are fewer loans being underwritten by the industry because of the credit bureau being there. That’s a good thing – [people] are not borrowing for the wrong reasons or the wrong circumstances.”
In July, the Central Bank said that lenders were more hesitant about issuing credit to both individuals and businesses in the second quarter compared with the first three months of the year. Mr Sarkar said demand for mortgages had also declined as a result of the weaker housing market but argued that elsewhere signs were more positive.
He said balances in customer’s current and savings accounts had increased by between 10 and 11 per cent, which, he said, “helps the liquidity situation for us and for the entire country”.
“Even the wealth management – insurance and investment – business is still growing at a very healthy pace. Customers are still planning for the future.”
He said that the personal banking side of the business had only been marginally affected by increasing liabilities being racked up by the increasing number of non-performing loans linked to SME customers, but he welcomed the anticipated introduction of a bankruptcy law.
“We’ll see the positive effects of that within the next six to 12 months. Hopefully, the credit bureau and the bankruptcy law put together should give the industry a lower provision rate going forward.”
A report published by NBAD Securities earlier this week predicted that aggregate net profit across the 13 banks it tracks for the third quarter is likely to be 1.9 per cent lower year-on-year.
However, Emirates NBD has continued to outperform, increasing its share of the market by almost 1 per cent year-on-year by the end of June. It has a market share of just below 20 per cent, followed by NBAD with 16.3 per cent. However, once the latter’s proposed merger with FG B concludes, its combined share will be 25.66 per cent.
Luke Ellyard, a Dubai-based partner at KPMG, said that he expects more mergers in the sector as trading conditions remain tough.
“Realistically, things are trending downwards and the expectation is that this will continue through 2017. It’s an increasingly competitive market and in all of the meetings we have there is still a lot of talk about consolidation. I think that will help on a number of fronts.”
For example, he said that merged banks would benefit from improved liquidity ratios, allowing them to lend more to certain sectors, as well as lowering overheads and costs of raising capital.
“We’re continuing to see a focus on costs,” he said.
mfahy@thenational.ae
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