Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Lending conditions in the UAE are expected to improve in the third quarter, even as geopolitical developments weighed on credit conditions in the second quarter, according to the Credit Sentiment Survey published by the Central Bank of the UAE (CBUAE).
Financial institutions expect the weakness recorded in the June quarter to be temporary, with both demand for loans and their appetite to extend credit forecast to strengthen during the September quarter, the survey said.
Demand for business loans is expected to recover across all categories of companies, with the largest improvement anticipated among small and medium-sized enterprises, followed by large companies and government-related entities.
The outlook is also positive across economic sectors. Survey respondents expect loan demand to strengthen across all industries, led by manufacturing, electricity, gas and water, and retail and wholesale trade.
Financial institutions also expect their appetite to extend business loans to increase during the third quarter, with the improvement anticipated to cover both SMEs and large companies.
Demand for personal loans is similarly expected to recover across all major lending categories. Credit cards are forecast to record the strongest increase in demand, followed by housing loans and other personal loans.
Banks and other credit providers also expect their appetite for personal lending to improve, particularly for credit cards and housing loans, the survey said.
The positive third-quarter outlook follows a moderation in credit conditions during the second quarter, when financial institutions became more cautious about lending amid economic uncertainty.
Business loan demand eased as perceptions of weaker economic conditions and subdued investment activity affected borrowing. Some institutions also cited geopolitical developments, supply-chain disruptions and volatility in the oil market.
However, changes in government-related expenditure and companies’ working-capital requirements continued to support business loan demand during the quarter.
Demand from government-related entities remained the strongest among business borrowers, followed by large companies. Local companies recorded stronger demand than expatriate and non-resident firms, according to the survey.
Personal loan demand also weakened during the June quarter, particularly for car and housing loans. Respondents attributed the moderation mainly to perceived economic conditions, lower household income and seasonal factors.
The Credit Sentiment Survey is conducted quarterly among senior credit officers at banks and other credit-providing financial institutions operating in the UAE. It assesses their experience of credit demand and availability during the latest quarter and their expectations for the following quarter.
The second-quarter survey was conducted between June 12 and July 27 and covered 240 respondents. Of these, 132 answered questions relating to business credit and 108 responded to questions on personal credit.
The CBUAE noted that the Credit Sentiment Survey reflects the qualitative views and expectations of surveyed senior credit officers across banks and financial institutions in the UAE, and the findings do not represent the official stance, views, or economic projections of the Central Bank of the UAE.
