Credit appetite and demand remained strong in 1Q 2024, bolstered by the positive economic outlook and a “resilient real estate market,” according to the CBUAE’s latest 1Q 2024 credit sentiment survey (pdf). The results — based on responses from 311 respondents representing licensed financial institutions in Abu Dhabi and the northern emirates — indicate a continuing trend of strong credit activity.

The impact of higher interest rates is “diminishing” gradually across the business and household lending segments, as “improving asset quality and economic outlook, stable credit-worthiness of borrowers and a solid economic backdrop” contribute to financial institutions’ willingness to lend, according to the survey.

Demand for business loans increased across all emirates, with Dubai recording the strongest demand growth, despite interest rates having a marginal negative impact on interest. Of the respondents, 53% reported an increase in demand, while 45.1% reported no change, with most of the demand coming from larger firms. Respondents anticipate demand for business loans to grow during 2Q 2024, particularly across the retail and wholesale trade, real estate, construction, and manufacturing sectors.

Underpinning demand: Improved economic conditions, working capital needs, as well as investment, were cited as the top three factors that drove demand during the quarter.

Appetite from banks also increased during the quarter to meet demand, especially towards larger firms as opposed to SMEs, according to the survey, which also suggests lending appetite will remain robust in 2Q 2024. Almost one third of respondents also reported an increase in the maximum size of credit lines.

Personal loan demand hit a record high in 1Q 2024, remaining strong across the country, especially in Abu Dhabi. The surge in demand was attributed to improved economic conditions, followed by rising incomes, and seasonal influences. Unlike business loans, interest rates had a positive impact on loan demand, potentially signaling softening loan terms.

People ❣️Shariah-compliant loans: Shari’ah compliant lending products saw the strongest demand on record, with demand surpassing that of conventional loans, the survey showed.

Looking ahead, personal loan demand is expected to pick up across all categories, particularly for credit card, personal housing, and car loans.

While economic outlook emerged as the key driver for banks offering personal and business loans, “competition from other banks, quality of banks’ asset portfolios, and change in credit-worthiness of borrowers,” followed as the main factors for lenders’ willingness to extend personal loans.

However, lenders rejected more personal loan applications during the first three months of the year. The slight uptick came on the back of a rise in rejected credit card and car loan applications, offset by a drop in house loan rejections.

Lending spreads were roughly unchanged across both personal and business loans, with 59.7% reporting no change in business loan spreads and 67.8% saying the same for personal loans.

Tags: