THE BRAKES ARE ON

With oil price down sharply from June 2014 lev­els, and eco­nomic growth lag­ging, lend­ing in the UAE is an­tic­i­pated to slow in 2015.

Gulf Business - - CONTENTS - TEXT BY AARTI NA­GRAJ

UAE'S BANKS ARE SET TO WIT­NESS a drop in credit growth in 2015 amid a back­drop of re­duced oil prices and slower re­gional eco­nomic growth, ex­perts have pre­dicted.

A re­cent re­port by ratings com­pany Stan­dard & Poor's (S&P) stated that loan growth in the coun­try will de­cline to about seven to eight per cent this year, com­pared to es­ti­mated to­tal as­set adopt a more con­ser­va­tive stance to­ward loans to the pri­vate sec­tor, par­tic­u­larly to re­tail, lead­ing to a rel­a­tive de­cline in lend­ing growth,” S&P said.

“How­ever, we ex­pect lend­ing to govern­ment-re­lated projects to re­main ro­bust,” it added.

S&P es­ti­mates Brent prices to av­er­age $55 per bar­rel in 2015, $65 per bar­rel in 2016, and $80 per bar­rel in 2017 and be­yond.

Al­though these prices are “well be­low” fis­cal break – even for the UAE, the coun­try has the flex­i­bil­ity to di­gest weak prices over the next two years, given its strong fis­cal po­si­tion, the re­port stated.

“There­fore, we do not fore­see any mean­ing­ful change in the in­vest­ment and spend­ing tar­gets of Dubai's and Abu Dhabi's govern­ments at this stage in the next one to two years.”

TEM­PER­ING EX­PEC­TA­TIONS

Dubai’s big­gest bank, Emi­rates NBD an­tic­i­pates loan growth to av­er­age be­tween five and seven per cent in 2015.

“Given our con­cen­tra­tion on Dubai and it's very lit­tle re­liance on oil, we would ex­pect good growth for Emi­rates NBD and the bank­ing sec­tor as a whole,” CEO Shayne Nel­son told re­porters re­cently.

Abu Dhabi’s First Gulf Bank ex­pects to achieve loan growth of nine to 11 per cent in 2015, sim­i­lar to 2014, while Na­tional Bank of Abu Dhabi (NBAD) an­tic­i­pates loan growth in “mids­in­gle-dig­its”, its chief ex­ec­u­tive Alex Thursby said. RAK­BANK, which saw strong loan growth of around 15 per cent last year, is tar­get­ing growth in the “low to mid teens” in 2015, ac­cord­ing to CEO Peter Eng­land.

“I’m quite con­fi­dent we can achieve it, of course sub­ject to whether there’s a ma­jor is­sue with oil price or not,” he said.

“If oil prices drop fur­ther and fur­ther for the next 12 months, there will be some im­pact. If they sta­bilise where they are at and slowly climb back up – I think that sort of loan growth is achiev­able,” he added.

One of the main rea­sons is the kind of sec­tors the bank is ex­posed to Eng­land ex­plained.

“We are very fo­cused and tar­geted on re­tail and SME growth. A lot of growth last year also came from com­mer­cial lend­ing – as dis­tinct from very small busi­ness – so we have moved into mid­scale cor­po­rate lend­ing,” he said.

He added: “The sort of cus­tomers we tar­get, the sort of peo­ple we see day-in day out have seen no change, noth­ing at all [be­cause of the lower oil prices].”

CREDIT BU­REAU IM­PACT?

The much-an­tic­i­pated Al Eti­had Credit Bu­reau, cre­ated to in­crease trans­parency in the mar­ket and avoid the repeat of a credit bub­ble in the UAE, be­came op­er­a­tional in Septem­ber 2014 and for­mally launched in Novem­ber af­ter mul­ti­ple de­lays.

The bu­reau pro­vides data on peo­ple’s credit his­to­ries, and dur­ing its launch, of­fi­cials con­firmed that 90 per cent of the con­sumer credit data that was pro­vided to it had been up­loaded. How­ever banks have been slow to warm to it, par­tially be­cause the bu­reau does not ac­cept li­a­bil­ity for the in­for­ma­tion.

“We are not see­ing a ma­jor drop in lend­ing,” said Eng­land. “We are not see­ing a sud­den change in terms of our lend­ing pro­cesses as re­sult of the in­for­ma­tion that we can see. To be fair a lot of this in­for­ma­tion was avail­able be­fore.”

While lenders need to pro­vide data to the bu­reau, they can de­cide on whether they want to ac­cess the in­for­ma­tion – it is not com­pul­sory for banks to rely on the bu­reau to make lend­ing de­ci­sions, he said.

“We are in a risk-tak­ing busi­ness. Ev­ery prod­uct we write we ex­pect a cer­tain amount of those cus­tomers not to pay us back over a pe­riod of time.”

En­gin agreed that the credit bu­reau has not im­pacted lend­ing as yet.

“It’s a good thing that the UAE came up with the bu­reau. But it gen­er­ally takes a few years be­fore it be­comes ef­fec­tive be­cause you need to pile up data – so banks be­gin to work to­gether and they be­gin to give some of the data to the credit bu­reau and af­ter a few years, the prod­uct be­comes rel­e­vant,” he ex­plained.

“I’m not sure it will have a mean­ing­ful im­pact any­time soon.”

WE EX­PECT OVER­ALL LEND­ING TO SLOW DOWN THIS YEAR AS WE ARE FAC­ING EVENTS SUCH AS LOWER OIL PRICES – WHICH ARE HAV­ING AN IM­PACT ON THE ECON­OMY, A COR­REC­TION IN THE REAL ES­TATE MAR­KET AND CON­TIN­UED VOLATIL­ITY IN THE MAR­KETS. SO ON THE BA­SIS OF ALL THESE COM­BINED, WE THINK THE BANKS WILL BE A BIT MORE SE­LEC­TIVE.”

Emi­rates NBD CEO Shayne Nel­son.

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