UAE bankers expect slower loan growth this year

The UAE’s top bankers are predicting loan growth will stall this year after several years of buoyant expansion.

Alex Thursby, the chief executive of the National Bank of Abu Dhabi, said he was expecting loan growth to drop to 5 or 6 per cent this year from 8 and 9 per cent last year as the economy begins to slow amid lower oil and home prices.

“I think we have growth in the economy but growth is slow,” he said. “I think that the expatriate communities are sitting on their hands a bit on the retail front.

“Our expectation this year is that the market up to May has grown 8 per cent but I do think we will see a slowing down.”

Abdulaziz Al Ghurair, the chief executive of Dubai-based Mashreq Bank, voiced doubts on Wednesday that overall loan growth in the UAE would be substantial this year.

“I think credit growth will be flattish toward the end of this year,” he said. “You have to see who is borrowing. Is it really filtering down to the real economy, or are a few large government entities raising that fund?”

It is not all bad for banks though, because they have been expanding overseas into countries such as Egypt, India and Indonesia. And they have also been shoring up the services side of their business from asset management to securities brokerage.

Major UAE lenders – NBAD, FGB, Abu Dhabi Commercial Bank, Emirates NBD and Dubai Islamic Bank – reported strong earnings in the first two quarters of the year and are expected to weather the collapse in oil prices, according to analysts.

The price of crude has shed more than half of its value in the past year amid slowing economic growth in China and an increase in oil production in North America.

“We think the UAE is the most resilient, diversified economy in the GCC, and that has been demonstrated over the last few decades,” said Jaap Meijer, the Dubai-based investment bank Arqaam Capital’s head of financial services.

“If you look at non-oil GDP growth, the bulk was driven by the private sector rather than the public sector. A slowdown in government spending therefore should slow down economic growth in the UAE, but growth should still remain positive, driven by a robust private sector.”

The past three years have been buoyant for UAE banks as they emerged from the 2009 debt crisis, in which many Dubai government-related entities came close to bankruptcy as property prices collapsed and capital markets dried up.

Government spending on infrastructure and low interest rates propelled the economy to grow at more than 4 per cent over the past two years.

However, the oil slump has put a brake on the UAE’s economic growth, with the IMF forecasting 3.2 per cent growth this year.

NBAD on Wednesday said its second-quarter profit rose 1.3 per cent to Dh1.45 billion from Dh1.43bn for the same period last year.

Although the bank said loan growth reached 19.9 per cent at the end of the second quarter, revenue from its key corporate division fell 6.3 per cent amid declining returns because of low interest rates. It also said deposits fell 3.1 per cent.

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