Demand for business loans rose in the first quarter according to the Central Bank – but lenders are less willing to grant them.
The lender of last resort did not say why there was an increase in demand.
But analysts said that it could be because of payment delays trickling down the supply chain amid deteriorating economic conditions.
“Despite the recovery in loan demand, the survey results suggested a reduced willingness to extend business loans among financial institutions, with changes in credit standards suggesting a higher degree of risk aversion,” the Central Bank said.
The bank added that its net balance measure in aggregate for business loans rose to 13.6 in the first quarter.
That represents a significant change from the fourth quarter of 2015, when the measure was minus 8.1 in the fourth quarter, the first negative reading since the survey started in 2014 amid the steepest drop in the price of oil since the global financial crash of 2008.
In the most recent survey, the central bank said 45 per cent of respondents reported an increase in demand for business loans, 16 per cent reported a decrease in demand, while 39 per cent reported no change. Meanwhile, demand for personal loans rose, with a net balance measure of 5 in the first quarter compared to minus 6.2 in the fourth quarter.
“I am surprised by the increase in loan demand in the survey,” said Jaap Meijer, head of financial services research at Arqaam Capital, a Dubai-based investment bank.
“We know in Saudi Arabia a lot of the demand is to finance working capital because the debtors don’t pay, so they need bank loans to finance their working capital requirements. However, that would represent a low quality low demand.”
Demand for debt in the UAE was anecdotally declining in 2015 after the price of oil started its long descent in the previous year. At the same time, banks have become more particular about who to lend to as the pool of cash available diminished.
According to a survey by Gulf Finance, a Dubai-based small business financier, more small businesses in the UAE struggled to get loans after confidence slipped to new lows in the fourth quarter of last year when the fall in the price of oil was most fierce.
SMEs, vital for the UAE’s economic growth, reported in the survey that they are finding it more difficult to secure financing and to get paid. They are also retrenching plans for expansion and have stopped hiring.
Follow The National’s Business section on Twitter