KHALEEJ TIMES, Thursday, Nov 7, 2019 | Rabi Al Awwal 10, 1441
Public sector credit demand to boost UAE lending
Credit demand from the government and public sector enterprises will fuel
lending growth in the UAE in 2019 and 2020 amid stable but subdued economic
growth, Moody's Investors Service said.
Maintaining its stable outlook for the UAE banking system, the ratings agency
said strong capital, stable funding and healthy liquidity would balance banks'
weakening asset quality and softening profitability.
"Subdued credit growth will reflect solid borrowing from the government and
public sector combined with muted private sector borrowing. We expect overall
credit growth of four per cent in both 2019 and 2020, broadly in line with 4.3
per cent in 2018," analysts at Moody's said in a report on the banking system
The UAE banking sector continues to be the largest in the Arab world with the
combined assets of all banks growing 6.5 per cent to Dh2.87 trillion in 2018 as
the amount of credit extended grew 5 per cent to Dh1.66 trillion, according to
the UAE Banks Federation.
In the first seven months of 2019, UAE banks' saving account balances hit a
record of circa Dh165.8 billion, a 9 per cent growth of Dh13.8 billion against
Dh152 billion by the end of 2018, according to statistics from the Central Bank
of the UAE.
Consumer trust in the UAE's banking sector also has been growing stronger
year-on-year, ranking the industry way ahead of its peers in developed nations,
according to a survey.
The recently-released Trust Index Survey by the UBF revealed that 74 per cent of
respondents had a high trust in the UAE banking sector, up from 68 per cent in
The UAE enjoys a higher trust in the banking sector than many other developed
nations, including the US, the UK, China, Japan, France, and Germany, according
to the survey.
"Consumer confidence in the banking sector increased, with 95 per cent of retail
banking customers being satisfied with the performance of their main bank, up
from 93 per cent in the previous year," AbdulAziz Al Ghurair, chairman of the
Moody's said credit growth slowed to 1.7 per cent in the first six months of
"Credit demand from the government and public sector enterprises will fuel
lending growth in the country, amid government related infrastructure projects
and major investment in the hydrocarbon industry. At the same time, credit
demand from private corporates and individuals will remain low, reflecting lower
business volumes and constrained disposable incomes," said the report.
Lending to the government and public sector has increased by eight per cent
during the nine months ending August 2019, compared to two per cent for the
private sector corporates and individuals, according to Moody's data.
"Problem loan formation will increase over the next 12 to 18 months amid subdued
economic growth, as corporates face lower business volumes and margin
compression while personal borrowers face limited wage growth. We expect problem
loans to increase to between 4.8 per cent and 5.3 per cent of gross loans over
the outlook horizon. The small and mid-sized corporates segment, along with
individuals, will drive the increase in delinquencies," said the report.
Household loan performance will continue to weaken as limited wage growth
combined with a high cost of living constrain borrowers' repayment capacity, the
credit ratings agency said.
"Staff reductions across the private sector and government-owned companies will
continue to reflect an adjustment to expected lower economic growth. Household
loans accounted for 20 per cent of sector-wide lending as of June 2019. The loan
performance to mid-sized corporates and small businesses will weaken owing to
lower business volumes and margin compression Consequently, we expect small and
mid-size banks to face higher asset quality challenges than the larger banks,
given their larger exposure to small counterparties, which are more vulnerable
to the subdued economy," said Moody's.