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Robust economy spurs credit demand growth, UAE central bank says

UAE national banks increased their investments in local stock markets by Dh4.4 billion

Demand for bank credit in the UAE is growing, supported by economic stability and strong investments, despite rising interest rates, the Central Bank of the UAE (CBUAE) said.

According to the Credit Sentiment Survey of the CBUAE for Q2 2024, the positive economic outlook and improving asset quality continue to support the willingness of financial institutions to lend.

The survey results indicate that the strong demand for credit is likely to continue until the third quarter of this year, the CBUAE said, noting that the construction sector recorded the highest growth rate in credit demand during the second quarter of this year, followed by manufacturing, real estate development, and retail and wholesale trade.

According to analysts at Fitch, economic diversification will keep credit demand in the UAE robust. “We continue to expect that the UAE’s credit growth will pick up from 8.4 per cent y-o-y at the end of 2023 to 9.5 per cent by the end of 2024, despite higher-for-longer borrowing costs. This, along with expanding bond portfolio, will drive stronger growth of 11.5 per cent y-o-y in total assets growth this year. Strong credit demand and lower cost of borrowing will drive credit growth stronger to 10.4 per cent y-o-y by the end of 2025.”

The CBUAE data showed that the second quarter of the year saw continued strong demand for trade credit and increased lending appetite. Demand was strong across all loan categories and industry sectors, with strong demand from large government entities and large corporations.

The survey explained that all the emirates witnessed a strong increase in credit demand during the second quarter of this year and expected credit demand to remain strong across all economic sectors in the coming three months, especially in the construction, real estate, manufacturing, retail and wholesale sectors.

In the meantime, the UAE national banks increased their investments in local stock markets by Dh4.4 billion over the past year, as per CBUAE’s latest data. By the end of May, these banks had elevated their equity investments to Dh16.1 billion, marking a year-on-year (YoY) growth of 37.6 percent from Dh11.7 billion in May 2023,

Foreign banks also contributed to local stock markets, raising their investments to Dh300 million by the end of May, up from Dh200 million a year earlier, which represents a 50 percent increase or Dh100 million.

At the close of May, national banks comprised 94.9 per cent of the total Dh16.4 billion in equity investments by banks operating in the UAE, while foreign banks accounted for the remaining 5.1 per cent. Traditional banks reported investments of Dh 14.2 billion in local stock markets, reflecting a YoY rise of 52.7 per cent or Dh4.9 billion compared to Dh 9.3 billion in May 2023.

Investments by Islamic banks in local stock markets reached Dh2.2 billion at the end of May, which is a year-on-year decline of 15.4 per cent from Dh 2.6 billion in May 2023.

According to CBUAE statistics, Abu Dhabi banks had investments totaling approximately Dh11.4 billion in local stock markets, while Dubai banks reported investments of Dh2.2 billion, and banks in other emirates contributed around Dh 2.8 billion by the end of May 2024