Credit demand softening in the UAE


“I don’t want you.”

“I don’t want you, either.”

That appeared to be the dynamic between the UAE’s banks and SMEs during the third quarter of 2016. According to the UAE Central Bank’s Credit Sentiment Survey for the quarter, UAE banks are less keen to lend to SMEs, while SMEs in the country are less enthusiastic about borrowing from banks.

The report flies in the face of suggestions that, thanks to the UAE’s new draft bankruptcy law, SMEs in the country would find it easier to secure credit. Instead, according to this quarterly survey, banks tightened their credit standards, suggesting a higher degree of risk aversion in extending loans, especially to SMEs.

On the other side of the equation, the report noted a softening in demand for business credit, suggesting that SMEs were more averse to borrowing during the third quarter. Indeed, according to the report, the demand for business loans showed a net balance of measure of -2.3, down from the 3.1 recorded in the previous quarter.

By emirate, survey respondents reported a decrease in demand for Abu Dhabi and Dubai. In contrast, a modest expansion in demand for business loans in the Northern Emirates was recorded, with a net balance measure of 1.5. With the exception of transport, storage and communication, business loan demand was negative across all industries, the report added.

And it wasn’t only SMEs who were wary of taking out more credit in the third quarter of 2016. According to the report, demand for personal loans also slowed across every emirate. The softening of demand was most notable among car loan and non-housing investment, the report said. However, the Central Bank also noted that there had been a slight increase in credit card demand.

Read the full report here.

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