Debt Fears Mount in UAE
07/24/2013 12:00 pm EST
Investors should take heed of the somewhat frivolous spending habits and borrowing tendencies that have been taking place recently in the UAE, and pay attention to what this has meant for many big banks, according to Gillian Duncan and Gregor Stuart Hunter of The National.
Consumer lending growth has doubled across the Emirates as a wave of credit-fueled spending triggers warnings over excessive borrowing.
Credit cards and borrowing to buy cars drove up profits for UAE banks reporting earnings this week after consumers took out loans worth Dh9.8bn more during the first five months of the year, already matching the increase for the whole of 2012. If present rates of growth continue, 2013 is on track to record twice as much new borrowing as last year.
Personal loans to residents have increased 3.8% across the sector to Dh270.7bn between January and May, according to the latest data available from the Central Bank. Data for June is yet to be released, but the total already outstrips the Dh8.8bn rise in personal borrowing reported during all of 2012.
The increase comes as the Abu Dhabi Department of Economic Development warns of the dangers of rising indebtedness among Emirati borrowers.
"It's important to bring awareness to the sensitive subject," said Jalai Masaabi, a department spokesman at an event aimed at raising awareness about credit-fuelled spending in the capital this week. "In the end, we want a national who is productive to the economy and not living pay cheque by pay cheque to pay off their debt," he said.
Big banks are reporting rapid growth from their retail books while their corporate customers tread with caution. Sector-wide lending is up 2.9% between January and May, the same data showed.
The banking sector's recovery from the property crash has helped to tempt customers into car showrooms in greater numbers as credit becomes more freely available, according to analysts.
The UAE economy is expected to decelerate this year to 3.8% from 4.4% in 2012, Emirates NBD said. Economists say that strong external and domestic demand is helping to sustain growth.