Neither a borrower nor a lender be
Despite a slight upturn in lending, some say UAE banks are still reluctant to grant personal loans. But others believe that consumers are the wary ones.
February 24, 2010 4:11 by Aarti Nagraj
Banks in the UAE have started lending more, with personal loans at the end of January 2010 reaching AED212.3 billion, up from AED209.8 billion at the end of December last year, according to UAE Central Bank statistics released on Tuesday. The January figures indicate an increase of 2.5 percent compared to the same period last year.
Loans in the UAE grew by just 2.4 percent in 2009, compared to an annual growth rate of about 35 percent between 2005 and 2008.
But while the increase this year is only slight, it is still significant.
Soon after the global financial crisis hit the UAE, banks immediately slashed lending to reduce defaults. At the end of 2008, many banks operating in the UAE, including Lloyds TSB and HSBC, also hiked minimum salary requirements for personal loans.
Banks have also been stocking up massive provisions to help cover the both consumer and corporate defaults; UAE Central Bank data showed that specific provisions for non-performing loans (NPLs) stood at AED33.4 billion in January 2010, a 64 percent increase compared to AED20.4 billion the year before. Banks also kept aside AED12.4 billion in January this year for general provisions, which is for loans that might default.
The banks’ caution might be justified: the UAE Central Bank said earlier this month that it expects NPLs to increase to about 6.4 percent of all credit, up from 4.4 percent in 2009.