UAE banks stepped up their personal loans in the first quarter of this year to take advantage of a bigger appetite by consumers striving to cope with soaring inflation, official figures showed yesterday.
Personal loans swelled by around 12 per cent in the first quarter after jumping by nearly 29 per cent in 2007, triggering discussions between the Central Bank and the 51 commercial banks to improve lending regulations in this sector.
From Dh153.7 billion at the end of 2007, total personal loans extended by the UAE's 23 national banks and 28 foreign units climbed to nearly Dh172bn by the end of March, showed the figures by the Central Bank.
The credits by the end of March included around Dh48.4bn in personal loans for consumption purposes and the rest in personal loans for business.
Over the previous five years, personal lending had grown by an annual average of 10-15 per cent and bankers attributed the higher growth in 2007 and this year to the economic boom and soaring inflation in the UAE.
"This is normal. In any country, credits and personal loans pick up when the economy picks up. Higher consumer prices and rising rents here are also contributing to an increase in personal credits," said an Abu Dhabi-based banker.
"There have been discussions between banks and the Central Bank to find the best ways to regulate personal lending. The Central Bank has already set a ceiling on personal loans but the latest discussions are intended to ensure some persons do not cheat the system or abuse the loan facilities."
Central Bank sources confirmed the discussions but said they were part of regular contacts with the UAE banks to ensure stability and discipline. The UAE Central Bank has set a ceiling of Dh250,000 on personal loans and up to Dh2m on personal loans for business purposes.
But bankers said there had been malpractices involving some debtors who had provided fake documents to obtain loans for business.
Some others tried to get loans from more than one bank, they said.
"The discussions with the Central Bank are aimed at ending such practices and restoring discipline.
"I think this is good for both the banking sector and the clients because many of them could fail to pay back," a banker said.
Besides a surge in general credits, UAE banks have largely benefited from the increase in personal loans, with their net profits soaring to a record Dh24.5bn in 2007 from nearly Dh19bn in 2006. The earnings are projected to swell further this year as was shown in the semi annual balance sheets of most banks.
"Our expectations are that the combined net profits of UAE banks will be higher by between 10 and 20 per cent this year.
"On an individual basis, some banks could achieve 50 per cent growth," said Ziad Dabbas, Share dealing adviser at the government-controlled National Bank of Abu Dhabi. "The main reasons are the economic boom, the surge in credits for projects, strong demand for personal loans, and diversification of investments."
Central Bank figures showed the banks' total credits grew by more than 11 per cent in the first quarter to a record Dh723.8bn at the end of March from around Dh647.4bn at the end of 2007. They had jumped by around 36 per cent from Dh474.1bn at the end of 2006. The construction and trade sectors remained the largest beneficiaries of such credits, receiving Dh74.8bn and Dh117.1bn by the end of March.
"The government was the third largest recipient, with credits of Dh69.1bn.
To cope with the business upturn, UAE banks have steadily boosted their capital and reserves in line with Central Bank instructions to avert a fresh bad debt crisis similar to that in early 1980s, when many banks were on the verge of collapse.
From Dh104bn at the end of 2006, their combined capital and reserves leaped to Dh130.8bn at the end of 2007 and peaked at Dh145.4bn at the end of March, according to the Central Bank.
In a recent study, the Abu Dhabi Chamber of Commerce and Industry has urged the banks to be more careful in providing mortgage loans to save the sector from a possible US-style sub-prime crisis.
But economists ruled out such a problem in the near future on the grounds the size of such loans has remained small compared with the banks' financial
resources despite their rapid growth over the past two years. From around Dh31bn at the end of 2006, real estate loans soared to nearly Dh58.8bn at the end of 2007 and peaked at Dh64.9bn at the end of March.
"I know there has been a sharp rise in mortgage loans in the UAE due to the current boom in the real estate sector.
"This is normal for a country witnessing an economic boom and having a large banking sector," said Mohammed Al Asumi, a Dubai-based economist.
"I don't think this increase is worrying because the total size of those credits has remained within reasonable levels and on the safe side.
"At the same time, the banks in the UAE are enjoying a strong position and they are diversifying their lending activity.
"Any problem in their housing loans could be offset in other sectors."
Source: http://www.business24-7.ae/
