UAE credit growth expected to be nearly flat in 2015 – Mashreq CEO

Credit growth in the United Arab Emirates is expected to be around 2 per cent this year, the chief executive of Mashreq bank said on Wednesday, in a fresh sign the UAE credit cycle may have peaked because of low oil prices and cooling property markets.

“Credit growth will be flattish,” Abdul Aziz al-Ghurair, who is also chairman of the UAE Banks Federation, an industry group, told reporters on the sidelines of a conference in Dubai.

His forecast was lower than the expectations of many bankers just a few months ago. Gross bank lending in the UAE grew 8.0 percent last year, according to revised central bank data.

A quarterly central bank survey published on Wednesday showed growth in demand for business credit and personal loans continued to slow in the second quarter, while lenders’ expectations for the quarter ahead softened.

The central bank attributed the slowdown to a natural adjustment from unusually fast growth in the middle of 2014.

But more specific factors may also be at work. Global oil prices are at roughly half their levels in June 2014, slashing the UAE’s energy export revenues, and although government spending has kept economic growth strong, some banks and businesses have become more cautious.

“With oil prices down by 50 per cent, it makes sense for people to lower their credit exposure,” said one banking analyst, who asked to remain anonymous.

Also, Dubai’s property market appears to have peaked; home sales shrank by about two-thirds in the first half of 2015, and selling prices have dropped by an average of 8 per cent since June 2014, property consultants JLL said in a report on Wednesday.

Ghurair, who did not give forecasts for his own bank, also predicted that banking sector profits would rise about 10 per cent in 2015 – but said some of that growth would come from lower impairment charges for bad loans, rather than expansion of lending.

Tirad Mahmoud, chief executive of Abu Dhabi Islamic Bank, told Reuters in May that one sign of the slowing industry outlook was that some UAE banks were resorting to cross-border lending to keep growing. He noted that this strategy had limits.

A few UAE banks say they can maintain high growth rates. Adnan Chilwan, chief executive of Dubai Islamic Bank, said on Wednesday that he expected his bank’s loans to expand 20 per cent this year. At the start of this year, he predicted a range of 15 to 20 per cent.