Lending by the United Arab Emirates' biggest banks is falling short of industry estimates as slower growth in the second-largest Arab economy damps credit demand. Combined lending by the top seven banks climbed 0.6 percent in the first quarter to 749.5 billion dirhams ($204 billion), their earnings statements show.
Morgan Stanley and Cairo-based EFG-Hermes Holding both forecast a five percent increase in loan growth in 2012. UAE economic growth will decelerate to three 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 six-nation Gulf Cooperation Council (GCC) and is below average forecasts for the Middle East, Latin America, Asia and the BRICS group of emerging markets, the forecasts show. A 29 percent drop in lending rates last year has squeezed the margins the nation's top-four banks get from interest on loans.
Rates decline
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 per cent at the end of December, according to data compiled by Bloomberg. It rose to 1.53625 percent yesterday, the highest in the GCC. Equivalent rates were 0.9025 percent in Saudi Arabia, 1.26429 percent in Qatar and 0.725 percent in Bahrain yesterday. UAE interbank rates were kept high by the nation's banks until last year as they sought to attract deposits after the banking sector's loan-to-deposit ratio rose above 100 percent.
That ratio fell to 97 percent in February, central bank data show. Combined customer deposits at the top seven banks rose 8.4 percent in the first quarter to 790.4 billion dirhams, led mainly by a jump in government deposits at National Bank of Abu Dhabi, the second-biggest UAE lender, according to the banks' results. That compares with growth of 1.9 percent in 2011, central bank data shows. 'Conservative stance' "In the first quarter, deposit growth was quite healthy, higher than lending growth which is positive for the sector," Timucin Engin, a Dubai-based associate director at Standard & Poor's said by phone on May 7.
Three of the UAE's top-seven banks - Abu Dhabi Commercial Bank, First Gulf Bank and Mashreqbank - - reported a decline in lending in the first quarter from December, while National Bank of Abu Dhabi said lending advanced 2.3 percent, the fastest in the group. Emirates NBD, the biggest bank, reported a 0.5 percent gain.
Bank lending in the UAE, a federation of seven emirates including Abu Dhabi and Dubai, grew more than 30 percent annually in the four years to 2008 before slumping as the global credit crisis led to a crash in property prices and spurred loan defaults. Lending climbed 3.9 percent last year, after growth of 1.3 percent in 2010, amid a rebound in trade, tourism and transport.
