Azernews.Az

By Bloomberg

Oil prices at close to six-year lows are weighing on lending in the United Arab Emirates as banks tighten credit standards and demand ebbs.

Loan growth for the U.A.E.’s 49 banks may slow to as little as 6 percent this year, Timucin Engin of Standard & Poor’s said Jan. 20. It was 9.6 percent in the first 11 months of 2014, on course for the biggest annual increase since 2008, central bank statistics show.

“We expect the banks to be a bit more conservative in extending new loans,” Engin, a director of financial-services ratings at S&P, said by telephone from Dubai. The drop in oil revenue “will hurt deposits” in a market still recovering from the financial crisis, he said.

A decline in loans would underscore risks that the plunge in oil represents to the U.A.E., a country with 6 percent of the world’s crude reserves that has used its wealth to transform desert cities and create commercial and financial hubs. While the 57 percent slump in prices since June won’t result in lower U.A.E. spending, it will probably slow the rate of growth in expenditure, according to HSBC Holdings Plc.

The bank this week cut its forecast for the nation’s expansion this year by more than a percentage point, to 3.1 percent, the least since 2010.

Softening Growth

Growth in credit demand slowed in the fourth quarter as government-related entities and small- and medium-sized companies cut borrowing, according to a central bank survey published Jan. 20. Demand from industries including construction, property development and wholesale trade weakened, the survey showed.

“We do see a softening of loan growth in 2015,” Naveed Ahmed, an analyst at Global Investment House KPSC in Kuwait said, forecasting growth of 5 percent to 8 percent for the year. “Real estate markets have peaked so we can see less demand coming from these sectors,” Ahmed said by phone Jan. 20.

Dubai home prices climbed 18 percent in 2014, slowing from a 30 percent rise a year earlier, CBRE Group Inc. said Dec. 16. The rise in 2013 was the fastest in the world, which prompted the government to double a transaction tax and the central bank to restrict mortgages.

The U.A.E.’s new credit bureau, which allows banks to track customers’ indebtedness, will contribute to slowing retail lending, Mashreqbank PSC Chief Executive Officer Abdul Aziz Al Ghurair said last week after announcing the bank’s results.

Boost Spending

“Relative to the last two years we will probably have slower loan growth,” Al Ghurair said in an interview yesterday in Davos. “From my point of view in 2015 loan growth will average about 10 percent, lower than last year but still healthy.” Mashreqbank’s loan growth was 15 percent in 2014.

The U.A.E. government plans to boost spending by 6 percent in 2015 to 49.1 billion dirhams ($13 billion), state-run news agency WAM said Oct. 12.

“The U.A.E. is one of the most diversified economies,” Jaap Meijer, a director of equity research at Arqaam Capital Ltd., said by phone from Dubai Jan. 20. Arqaam expects loan growth of about 8 percent this year “mainly because non-oil gross domestic product growth will continue to be very strong,” he said.

Oil still accounts for about 30 percent to the U.A.E.’s GDP, government data show. Brent crude fell to $48.77 a barrel at 9:02 a.m. in London after trading above $115 a barrel last year.

Declining oil revenue will slow bank deposit growth and pressure credit growth, Engin at S&P said.

“The funding profile of the banks and the system as a whole improved quite a bit in the past few years,” he said. “Deposit growth was visibly stronger than credit growth, but looking into 2015 we expect deposit growth to slow.”