The Central Bank of the UAE (CBUAE) reports that demand for bank credit in the UAE is increasing, bolstered by economic stability and robust investments, despite rising interest rates. The Credit Sentiment Survey of the CBUAE for Q2 2024 highlights that the positive economic outlook and improving asset quality are sustaining the willingness of financial institutions to extend credit. The survey results suggest that the robust demand for credit is expected to persist until the third quarter of this year. Notably, the construction sector saw the highest growth rate in credit demand during the second quarter, followed by manufacturing, real estate development, and retail and wholesale trade.
Analysts at Fitch anticipate that economic diversification will maintain strong credit demand in the UAE. They predict that credit growth will rise from 8.4 per cent year-on-year (y-o-y) at the end of 2023 to 9.5 per cent by the end of 2024, despite elevated borrowing costs. This, coupled with an expanding bond portfolio, is expected to drive total asset growth to 11.5 per cent y-o-y this year. Strong credit demand and lower borrowing costs are projected to boost credit growth to 10.4 per cent y-o-y by the end of 2025.
CBUAE data indicates that the second quarter experienced continued strong demand for trade credit and heightened lending appetite. Demand was robust across all loan categories and industry sectors, particularly from large government entities and corporations. The survey reveals that all emirates saw a significant increase in credit demand during the second quarter and expects this demand to remain strong across all economic sectors in the next three months, especially in construction, real estate, manufacturing, retail, and wholesale sectors.
Meanwhile, UAE national banks increased their investments in local stock markets by Dh4.4 billion over the past year, according to CBUAE’s latest data. By the end of May, these banks had raised their equity investments to Dh16.1 billion, representing 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, boosting their investments to Dh300 million by the end of May, a 50 percent increase from Dh200 million a year earlier.
At the end of May, national banks accounted for 94.9 per cent of the total Dh16.4 billion in equity investments by banks operating in the UAE, with foreign banks comprising the remaining 5.1 per cent. Traditional banks reported investments of Dh14.2 billion in local stock markets, reflecting a YoY rise of 52.7 per cent or Dh4.9 billion compared to Dh9.3 billion in May 2023. Investments by Islamic banks in local stock markets reached Dh2.2 billion at the end of May, a year-on-year decline of 15.4 per cent from Dh2.6 billion in May 2023.
CBUAE statistics show that 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 Dh2.8 billion by the end of May 2024.
