Sluggish bank lending is threatening to put the brake on the UAE's economic rebound this year amid signs of faltering global growth.
First-quarter results from the country's top five lenders reveal they increased their loan books by just 0.7 per cent to Dh648.3 billion (US$176.49bn).
That represents about half the rate of loan growth in the same period last year and coincides with a faltering economic recovery in Europe and the United States. Oil dropped to below $100 a barrel on Friday for the first time since February as US labour department data showed employers hired fewer workers than forecast.
Banks in the Emirates are highly liquid, but they have been "stockpiling cash and investments rather than lending it out", said Khalid Howladar, a financial analyst at Moody's Investors Service. "They have the capacity but they're reluctant at this point in time to lend, given the uncertainty in the global economy," he said.
A lack of new lending to drive expansion comes as the IMFpredicts growth in the Emirates will trail the rest of the region this year with only Bahrain's economy expected to grow at a slower pace.
The UAE economy is expected to expand by 2.3 per cent in real terms for the year ahead, compared with growth of 6.6 per cent for Kuwait, the highest in the region. Bahrain's growth forecast was the lowest in the region at 2 per cent.
"The non-oil sector has been going through a very solid growth both in Dubai and Abu Dhabi, while a combination of continuing high oil prices and close to full- capacity oil output will ensure the bedrock of this healthy growth," said Philippe Dauba-Pantanacce, the regional senior economist at Standard Chartered. "But the upside potential for growth will be capped by the fact that oil output was already close to full capacity last year, and also protracted muted credit growth."
So far this year, bank credit growth has been driven by government-related entities rather than consumers. The UAE's big banks have also lost out from an aggressive push by smaller rivals from the Northern Emirates into Abu Dhabi and Dubai.
Lenders such as RAKBank, United Arab Bank and National Bank of Fujairah have taken market share from those in the capital and Dubai still reeling from the effects of the global financial crisis.
Among the UAE's biggest banks, National Bank of Abu Dhabi and Dubai Islamic Bank recorded single digit increases in new lending, driven by increased government borrowing. Lending at other big banks, including Emirates NBD, Abu Dhabi Commercial Bank and First Gulf Bank, was flat or in decline.
Faltering lending growth could dampen expectations of a tourism and retail-led rebound in Dubai gaining traction. Rising tourist arrivals and footfall in shopping centres has helped boost profits for companies including Emaar Properties, the developer and operator of Dubai Mall, and Dubai Holding, which owns property and hotel assets.
Banks have complained that the UAE's bankruptcy laws, which criminalise bounced cheques and limit their ability to repossess assets in the event of a missed payment, prevent them from lending large sums of money to all but the strongest companies.
Meanwhile, new Central Bank limits on how much can be borrowed by a single company are expected to hamper their lending to government-related holding companies, with many industry experts anticipating that a proposed 30 September deadline could be pushed back. Banks including National Bank of Abu Dhabi and Emirates NBD are lobbying the Central Bank over the issue.
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