Demand for business loans picks up as retail credit lags

Banks tighten their collateralisation requirements and premiums on riskier loans

Appetite for business loans has moderately increased across the board, with the exception of the emirate of Abu Dhabi, according to the Credit Sentiment Survey of the Central Bank of UAE for the first quarter of 2018.

The survey is a quarterly publication of the central bank which collects information from all banks and financial institutions extending credit within the UAE.

Results from the latest survey suggests that the demand for business loans was also expected to increase further in the next quarter.

On the other hand, survey results revealed that demand for personal loans in aggregate has decreased and was expected to remain weak in the next quarter.

While the corporate credit demand showed modest increase, by loan type, the increase was most evident among large firms and local firms.

Two-thirds of survey respondents reported no change in terms of credit standards, however, in aggregate, a positive net balance measure was observed, suggesting a tightening of credit standards during the March quarter.

With respect to specific terms and conditions, survey results indicated a tightening in credit standards that occurred most with respect to collateralisation requirements and premiums charged on riskier loans.

In terms of outlook, survey respondents predicted further tightening in credit standards but to a lesser extent in the June quarter. Survey respondents also expected further tightening across all lending terms and conditions, particularly with respect to premiums charged on riskier loans and spread over cost of funds. However, the survey data showed, demand for business loans was expected to increase further in the next quarter.

Demand for personal loans in aggregate has decreased in the March quarter.

When asked about which factors contributed to the change in demand for loans, the survey respondents cited that change in income, and financial markets outlook were the most important.

Personal loans

In terms of credit availability, more than 90 per cent of survey results cited that the credit standards are to be unchanged across all the categories. In terms of outlook, survey respondents predicted demand for personal loans to remain in the negative territory and credit standards in aggregate to tighten moderately.

Survey respondents anticipate the retail credit demand to decrease in the next quarter but to a lesser extent than the March quarter in aggregate. Survey respondents predicted that personal loans are going to remain in the negative territory. By emirate, survey respondents expected a decrease in demand in Abu Dhabi and Northern Emirates while an increase in demand in Dubai.

In the last quarter, survey results suggested a decrease across all categories of retail credit, most evident in car loan, conventional loan, personal loans, housing and investment. Credit card, Islamic loans, and housing — other (includes refinancing, renovations) also reported a moderate decrease in demand.

Demand for personal loans in aggregate has decreased in the March quarter. When asked about which factors contributed to the change in demand for loans, the survey respondents cited that change in income, and financial markets outlook were the most important.

Asset portfolio

When asked about those factors determining the change in credit standards during the March quarter, 80 per cent of survey respondents cited that quality of bank’s asset portfolio, and economic outlook as very important.

With respect to expectations for the June quarter, survey respondents predicted a further decrease in demand in conventional loans, housing — investment, and Islamic loans.

Change in credit demand is subject to factors such as change in income, financial markets outlook housing market outlook and interest rates.

For the June quarter, survey respondents cited that financial markets outlook, housing markets outlook, and change in income to be the most significant factors expected to influence personal loans demand.