Credit demand stayed robust in 4Q 2023, buoyed by accelerated economic growth and growing confidence among consumers and business, according to the CBUAE’s latest 4Q 2023 Credit Sentiment Survey report (pdf). The survey is based on responses from 70 licensed financial institutions in the UAE — 58 banks and 12 finance companies.

The impact of high interest rates on demand for loans has begun to wane as certain benchmark lending rates began to decline towards the end of 4Q, according to the report. Higher interest rates weighed marginally on businesses, yet personal loan demand remained unaffected.

Demand for business loans increased during 2H 2023 across all of the UAE, especially Abu Dhabi, with 57.6% of respondents reporting an uptick, the report reads. The construction, manufacturing, retail, and property development sectors led demand, with large firms leading demand for conventional loans. Demand for Islamic loans showed slower growth compared to other categories, according to the report.

Appetite for business loans is expected to remain robust into 1Q 2024, particularly in retail, construction, property development, manufacturing, transport, communications, and energy.

Personal loans saw a steady increase in demand during 4Q 2023, though at a slightly slower pace than previous periods, with Abu Dhabi leading the growth among all emirates according to the report. Loan demand was particularly prominent across housing, investment credit cards, and car loans, with customers showing a preference for traditional lending instruments over their Sharia-compliant equivalents.

Banks had an increased appetite for extending personal loans, driven mainly by a stable economic outlook, borrower creditworthiness, competition among banks, and ongoing regulatory adjustments. While loan terms remained stable, there was a slight uptick in premiums for riskier loans and minor adjustments in non-interest fees and maximum loan-to-value ratios, the report reads. Appetite is expected to remain robust into 1Q 2024, especially across the credit cards, housing, and car loans segments.

ICYMI- Emirati banks turned in high returns in 2023, fueled by minimal loan loss provisions, augmented interest margins, and high deposit rates that outperformed lending. S&P Global expects banks to see their bottom lines narrow slightly as the US Federal Reserve ends its monetary tightening cycle and begins to cut interest rates, leading to lower interest rate margins. GCC banks on the whole are expected to experience slightly slower credit growth this year, moderating due to an unfavorable base effect and heightened lending caution, S&P Global said previously.

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