UAE demand for business loans up but banks less willing to lend

UAE Central Bank reports hike in demand for business loans in first quarter
UAE demand for business loans up but banks less willing to lend
By Sarah Townsend
Thu 21 Apr 2016 10:46 AM

Demand for business loans strengthened in the first quarter of 2016 but banks were less willing to lend, according to data from the UAE Central Bank.

In its most recent Credit Sentiment Survey, the Central Bank said that 45 percent of respondents reported an increase in demand for business loans, 16 percent reported a decrease and 39 percent reported no change.

This generated a net balance measure of 13.6 in the first quarter, a significant jump from the -8.1 percent recorded in the fourth quarter of 2015 (which was the first negative reading since the survey started in 2014 and due to the steep drop in the price of oil).

The central bank said the rise in appetite was attributable to a shift in customers’ sales, fixed asset investments, interest rates and property market outlook, as more than two-thirds of respondents cited those factors.

At the same time, however, financial institutions were less willing to grant business loans in the first quarter, the central bank said, noting a net balance measure of 12.3 suggesting a tightening of credit requirements.

“Despite the recovery in loan demand, the survey results suggested a reduced willingness to extend business loans among financial institutions, with changes in credit standards suggesting a higher degree of risk aversion,” the bank said.

UAE financial institutions have become more particular about who to lend to as the low oil price takes effect and credit tightens across the whole region.

The survey results were broadly consistent regardless of firm size, the bank added, with respondents reporting similar level of tightening across both small-to-medium-sized enterprises (SMEs) and large firms. In the next quarter, survey respondents predicted further tightening in credit standards, the bank said.

Meanwhile, demand for personal loans also rose though to a lesser extent than for business loans. The central bank reported a net balance measure of 5 in the first quarter of 2016 compared to minus 6.2 in the fourth quarter of 2015.

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