Demand for business credit, personal loans slows down

Central Bank report shows further credit tightening in the second quarter of 2016 as credit standards are tightened

Growth in demand for both business credit and personal loans slowed in the second quarter of 2016, particularly in Dubai, according to the latest report by the country’s Central Bank.

The survey showed further tightening in credit standards, “suggesting a higher degree of risk aversion in extending loans, especially to small and medium enterprises (SMEs),” the report stated.

Respondents also expect more tightening in credit standards over the third quarter of 2016.

“[The results] suggested a lack of appetite for business loans. By emirate, survey respondents reported the softening in demand was observed in Abu Dhabi and Dubai, and most evident in Dubai where the registered net balance was slightly in the negative territory (-0.9),” the Central Bank said in its Credit Sentiment report.

It added that survey respondents attributed customer sales, fixed asset investment, and property market outlook to the slowdown in demand for business loans.

In terms of lending to individuals, demand for personal loans marginally slowed down across all emirates in the second quarter of 2016, mainly for car loans and non-housing loans, with respondents expecting modest growth in the third quarter.

Sebastien Henin, head of asset management at The National Investor in Abu Dhabi, said that banks as well as firms and individual have been cautious about lending/borrowing amid challenges in the macroeconomic environment.

“In this environment, banks will be very cautious about giving loans to retail because they know that a lot of people are being made redundant and a lot of companies are struggling, so banks will be very picky with their loans. I suspect that the cost of risk for banks will increase and I expect loan growth to slow again in the second half of this year,” he said.

From a borrower’s perspective, demand for loans will also slowdown from individuals as many employees find their jobs axed in the UAE and from companies as they face a tougher operating environment, Henin said.