Fewer UAE residents, businesses avail loans amid COVID-19; lenders tighten norms

Most banks and lenders have tightened credit requirements

Fewer businesses and private individuals in the UAE have applied for loans during the second quarter of the year, as the uncertainty surrounding the coronavirus pandemic and low oil prices lessened borrowers’ appetite for credit. At the same time, many banks have tightened requirement standards for getting credit.

In the latest UAE Central Bank Credit Sentiment Survey, more than half (53 percent) of the respondents said the demand for loans has declined either substantially or moderately.

The survey included responses from senior credit officers of all banks and financial institutions extending credit within the UAE. The poll gathered answers relating to credit conditions in the second quarter, as well as expectations for the third quarter of the year.

“[The] results for the second quarter show, as expected, a decline in credit appetite within the UAE, both for business and personal loans,” the bank regulator said in a report.

“This reflects the heightened uncertainty about economic activity due to the COVID-19 pandemic, reduced global growth and a low oil price environment,” it added.

The UAE government has rolled out a series of economic stimulus packages to mitigate the economic impact of the pandemic. In Dubai, the financial relief initiatives, aimed at increasing liquidity and supporting entrepreneurs, reached a total of 6.3 billion as of July 2020.

Survey results
While billions of UAE dirhams have already been made available by the government, the majority of banks and lenders in the UAE said they have, however, tightened loan requirements during the pandemic.

Nearly four in ten (37.6) percent of those polled said their credit standards were tightened moderately, while another 14.5 percent said they introduced significant changes to borrowing conditions.

In terms of demand, almost a quarter of the respondents said they didn’t notice any change at all, while only 22 percent saw a moderate or substantial increase.

Looking at the loans secured by different businesses, the decline is similar for all sectors, except for utilities and non-bank financial institutions, which registered a more modest decline.

When asked why there was less demand for loans, the majority (76.9 percent) said the decline may have something to do with the drop in sales.

About 60 percent of the respondents also believed that the decline in oil price as well as the coronavirus pandemic also reduced appetite for credit.

Rebound

Demand for loans, however, is expected to rebound soon, with 32 percent of the respondents saying they expect a moderate increase in loan applications in the succeeding quarter, while 4.2 percent are anticipating a significant increase.

Respondents in Abu Dhabi and Dubai are also more optimistic about the credit demand outlook compared to their peers in the northern emirates.

Zawya