UAE lending is growing – will it continue to the end of 2024?

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Funding Souq Editorial Team
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May 18, 2024
Funding Souq’s editorial team comprises experienced finance and investment professionals that are on a mission to fuel SME growth, create jobs, and drive the economy forward. They aim to share their extensive experience and industry know-how to empower entrepreneurs and investors alike.
May 18, 2024
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Lending across the UAE saw stellar growth across the board in 2023, with both retail and corporate lending seeing a rise last year, according to data from the UAE’s central bank.

This rise has been precipitated by GDP growth, rising oil prices, stable interest rates, a new regulatory environment and strong rise in personal and business loan demand from both customers and institutions.

While data does show that the trend is continuing so far in 2024, analyst predictions, however, forecast a decline in the sector by the end of 2024, due to a changing macro landscape.

UAE lending growth by the numbers

Loans given out by UAE financial intuitions as of December 2023 reached nearly AED 2 trillion (USD 542 billion), up 6% y-o-y, according to figures from the CBUAE. Total loans to the private sector reached AED 1.2 trillion (USD 337.6 billion),

up 5.8% over the same period in 2022. Lending to private sector businesses and industries grew 3.1% y-o-y to AED 822.7 billion (USD 224 billion), while personal and individual loans saw a whopping 11.5% y-o-y growth to AED 418 billion (USD 114 billion). 

Strong early signs in 2024

This rise is also showing early signs of continuing unabated in 2024, with January figures (the latest from the central bank) indicating a 6.5% y-o-y growth to AED 2 trillion. Business loans grew 3.2% y-o-y in January to AED 825 billion, while personal loans reached AED 422.2 billion, up 11.8% over the same period last year.  

Growth driven by higher loan appetite

Credit demand by both consumers and financial institutions has largely been behind the growth in 2023, with that demand looks to have continued into 2024 (at least until the first quarter of this year), according to the central bank’s credit sentiment survey.

While this growth is UAE wide, Abu Dhabi appears to be the emirate showing the biggest growth in credit demand. 

Interestingly enough, that demand increase appears to be concentrated in the conventional banking sector over the Islamic finance sector, according to the report.

Helping matters has been the relative stability of interest rates, which have hovered around 5.4% since early last. While that is still higher than the rate in early 2023, it remains largely lower than regional peers, including Saudi Arabia. 

Business loan demand

Demand for business loans grew a net positive balance of 26.7 in the second half of 2023, with 57.6% of businesses surveyed reported that they were looking for new loans. “By market segment, survey results reveal higher demand across all business loan categories. The growth in business loan demand was most prevalent for large firms, conventional loans, locals, GREs, SMEs, and expats,” according to the report. 

Credit appetite appears to be strongest in the capital-intensive construction sector, followed by manufacturing, retail and wholesale trading, and property development. 

Demand for business loans in the first quarter of this year showed no signs of slowing down, with sentiment showing a strong positive net balance of 31.4.

“For the March quarter, credit appetite and demand for business loans is expected to remain robust across all economic sectors, mainly in the retail and wholesale trade, construction, property development, manufacturing, transport, storage & communications, and electricity, gas & water sectors,” said the report.

Who have financial institutions been lending to?

Banks and other lenders have seen their appetite to dish out loans rise from late last year and into the first quarter of this year, with sentiments for 2H2023 seeing a net positive balance of 17, which rose to a net positive balance of 22 in the first quarter of 2023.

“The primary underlying factors driving banks and finance companies’ willingness to extend business loans were the economic outlook, changes in credit-worthiness of borrowers and risk tolerance, and quality of banks’ asset portfolios,” according to the survey. 

Demand for personal loans also rises

Demand for personal loans have also seen growth through to the first quarter of this year, with a positive net balance of 31.3 in 1Q2024, up from a positive net balance of 14.6 in 4Q2023. This growth has largely been driven by credit card payments, housing loans, and other personal loans.

On the flipside, banks have also seen their appetite for dolling out personal loans also increase to a net positive balance of 24.6 in 1Q2024, up from a net positive balance of 16.1 in 4Q2023, banks surveyed by the central bank said.  “Credit appetite is expected to increase across all categories of personal loans, primarily for credit cards, housing – owner occupier, personal – other, car loans, and housing – investment,” according to the report.

SMEs lending 

SMEs appear to be the biggest losers by far in this positive credit landscape. Demand by banks to lend has been skewed largely towards conventional businesses than SMEs, according to the report. “Overall appetite to extend business loans is mainly concentrated in large firms relative to SMEs,” the report noted. 

This is also notable in the value of loans doled out to SMEs, with SME loans falling nearly 1% y-o-y to AED 82.5 billion in December 2023, down from AED 83.3 billion the year prior. 

Read more about: UAE Lending Intiatives For SMEs

Can we expect this to continue by the end of 2024?

While plenty of the factors that contributed to higher loan demand are expected to improve this year – including a GDP growth of 4.2 % in FY2024, up from 3.5% in FY2023, according to IMF data – some analysts are projecting a slide in demand as the year goes by. S&P Global,

for instance, is noting that while it expects credit growth to continue through to 1H2024, “with higher-for-longer rates, cash flow pressures could eventually weigh on corporate credit quality and further weaken demand for new credit.” The S&P also notes that regional political instability may pose a risk to the overall growth sentiment in the region.  

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