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UAE loans to jump over 10 pct on deposits

The Central Bank of the United Arab Emirates main building in Abu Dhabi. (Wikimedia Commons)

DUBAI: Loan growth in the United Arab Emirates, the second-biggest Arab economy, is set to jump at least 10 percent this year as bank deposit growth drives down borrowing costs, according to Standard & Poor’s.

Lending will rise 10 percent or “slightly” more after a 9.6 percent increase last year, the rating company said. Customer deposits at the UAE’s 51 banks rose 11 percent in the 12 months through September, the most since 2008, central bank data show. That helped send the three-month interbank rate to the lowest since at least 2006, when Bloomberg began collecting data.

The UAE, holder of 6 percent of the world’s proven oil reserves, is pouring tens of billions of dollars into expanding ports, building airports and developing real estate as Dubai prepares to host the World Expo 2020 and amid an economic diversification plan. Average oil prices of about $100 a barrel last year are also helping support bank deposits.

Lending growth “will remain healthy in 2014,” Timucin Engin, associate director, financial services ratings at S&P, said by phone from Dubai Monday. It will be “in line with the strong outlook for retail credit growth and some additional activity in the corporate sector.”

Dubai’s economy is recovering from the global financial crisis helped by a rebound in tourism, trade and real estate, with growth set to average 4.6 percent a year between 2012 and 2015, more than twice the rate of the previous four years, according to government forecasts.

In November, the emirate won the right to host the World Expo 2020. It will need to invest almost 6 billion euros ($8.3 billion) on infrastructure projects before the six-month trade and cultural fair, said Sheikh Ahmad bin Saeed al-Maktoum, head of Dubai’s Supreme Fiscal Committee and chairman of Emirates airline.

The economy of the UAE, which includes Abu Dhabi and Dubai, contracted 4.8 percent in 2009 in the wake of the global credit crunch before the growth rate recovered to 3.9 percent by 2012. Bank lending growth had slowed to between 1 and 4 percent in the four years after 2008, from more than 30 percent annually in the four preceeding years.

“A few sectors are doing well. For example, the real estate and hospitality sectors are picking up, while government spending is happening and consumer lending is going to go up,” Chiradeep Ghosh, a Bahrain-based senior analyst at Securities & Investment Co., said by phone Monday.

While bank lending growth is still below an average of about 11 percent in the six-nation Gulf Cooperation Council, the rate will jump to 8.4 percent in 2014 from 2.3 percent in 2012, International Monetary Fund data shows.

The rise in liquidity at UAE banks reflects a gradual recovery of the industry and contrasts with 2008 when the federal government pledged $33 billion to ease funding after credit markets froze. Loan-to-deposit ratios at the country’s banks dropped to 92.8 percent in September from 105.7 percent in March 2010, Central Bank data compiled by Bloomberg show.

Bank deposits have also been helped by high oil prices and a surge in government deposits. Brent crude has averaged $108.7 a barrel in 2013, 73 percent higher than the $62.7 a barrel in 2009, according to data compiled by Bloomberg. Government deposits rose 23.9 billion dirhams in the nine months through September, accounting for a quarter of the overall rise, according to central bank data.

The three-month Emirates Interbank Offered Rate, used by banks to price some loans, dropped 0.49 percentage points, or 49 basis points, last year to 0.81 percent, according to central bank data on Bloomberg. The rate hasn’t changed since Dec. 5. The three-month rate in Saudi Arabia fell four basis points over the same period to 0.96 percent Tuesday.

Lending could grow 10 percent to 12 percent this year, Ghosh said.

 
A version of this article appeared in the print edition of The Daily Star on January 08, 2014, on page 5.

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Summary

Loan growth in the United Arab Emirates, the second-biggest Arab economy, is set to jump at least 10 percent this year as bank deposit growth drives down borrowing costs, according to Standard & Poor's.

Customer deposits at the UAE's 51 banks rose 11 percent in the 12 months through September, the most since 2008, central bank data show. That helped send the three-month interbank rate to the lowest since at least 2006, when Bloomberg began collecting data.

Loan-to-deposit ratios at the country's banks dropped to 92.8 percent in September from 105.7 percent in March 2010, Central Bank data compiled by Bloomberg show.

The three-month Emirates Interbank Offered Rate, used by banks to price some loans, dropped 0.49 percentage points, or 49 basis points, last year to 0.81 percent, according to central bank data on Bloomberg.


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