Lending by the UAE’s biggest banks is falling short of industry estimates as slower growth in the second-largest Arab economy damps credit demand.
UAE economic growth will decelerate to 3 percent this year from 4.9 percent in 2011 as oil output growth eases, according to the average forecasts of 12 analysts compiled by Bloomberg. That would be the slowest growth rate in the MENA region and is below average forecasts for the Middle East, Latin America, Asia and the BRICS group of emerging markets.
A 29 percent drop in lending rates last year has squeezed the margins the nation’s top four banks get from interest on loans. Morgan Stanley said, “The uncertainty continues for Dubai banks because they have exposure to restructured loans of the government-related entities whereas in the Abu Dhabi banks the asset quality tends to be better.”
The three month Emirates Interbank Offered Rate, a benchmark used by UAE banks to guide loan pricing and deposit rates, tumbled 62 basis points in 2011 to 1.52 percent at the end of December, according to data compiled by Bloomberg.
“It’s definitely a slow start, so I think our full-year targets look a bit optimistic for some banks,” Shabbir Malik, a Dubai-based analyst at EFG-Hermes, said. “Credit appetite continues to be weak.” Timucin Engin, a Dubai-based Associate Director at Standard & Poor’s said, “There would be corporate demand for loans, but banks aren’t necessarily risk takers in this market and still taking a conservative stance.”