World Economy

Dubai’s Slowing Economy Effects Credit Growth

The National Bank of DubaiThe National Bank of Dubai

Dubai’s economic slowdown following the prolonged decline in oil prices, is exerting pressure on retail banking business in the country and the growth rates this year and next are expected to reflect the current difficulties in the market.

“The slowing economy is a fact. It has impacted business growth of banks,” said AbdulAziz Al Ghurair, Chairman, UAE Banks Federation and CEO of Mashreq, Albawaba reported.

The latest UAE Central Bank data shows, total banking sector deposits fell for a third consecutive month in August, by 0.5% month on month. This resulted in the yearly rate of deposit growth moderating to 3.3% year on year, down from a recent high of 4.1% in May.

Data showed a marginal improvement in credit growth in August. The July fall was largely attributed to seasonal factors such as the end of Ramadan and Eid.

However analysts say the slowdown in economic activity continues to be reflected in a moderation in yearly credit growth.

Deleveraging in the small and medium-sized enterprises sector combined with job losses arising from restructurings have resulted in a year on year slowdown in credit growth.

Private sector credit growth slowed to 6.9% year on year in August, down from 8.5% in December 2015. Within the private sector, personal credit growth has decelerated to 5.5% year on year in August from 10.3% in December 2015.

“Demand for a number of retail products has been slackening during the last 9 months. We expect the trend to continue for the next 6 to 12 months. As we budget for next year, as an industry, most banks could be cautiously optimistic about next year,” said Suvo Sarkar, senior executive vice president and group head—Retail Banking & Wealth Management at Emirates National Bank of Dubai.

Bankers say the last 18 months have been one of the worst period for the UAE’s banking sector in terms of non-payable loans and slowdown in business. “It has been very different from the impact of global financial impact on the local banking sector.

The recent troubles were largely localized and those who were impacted were largely banks’ loyal customers for several years. It has been very stressful for both banks and customers. But things are settling down with the number of skips coming down. I think the worst is over,” Sarkar said.

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