Loans becoming more popular in the UAE
Borrowings across financial institutions in the UAE have seen a significant increase whereas deposits have been heading the opposite direction. Economists suggest that such a trend may indicate a relative slowdown in economic growth, yet liquidity still remains at respectable levels.
As stated through a data report released by the National Bank of Abu Dhabi (NBAD), the UAE’s outstanding credit, which is inclusive of borrowed funds by private individuals, has been estimated at roughly US$370 billion in July 2015 – this is considered to be a 10% increase year-on-year.
On the other hand, the number of state deposits have decreased by 6.2% year-on-year, with several banks declaring how customer deposits have also fallen by 3.1%. Nevertheless, the loan-to-deposit (LTD) ratio, a unit to help measure a bank’s liquidity, is still set at a steady growth. Such LTD have reached 95% in July this year, as opposed to the 87% seen in June last year.
In general, a lack of deposits combined with an increasing habit of loan issuing can be considered as indicators for an economic slowdown. In particular, the indicator, M3, illustrates the amount of money within the UAE’s economy, including currency circulation and bank deposits. The M3 has reached only a meagre 1% year-on-year in July 2015, staggeringly short in comparison to the 13.44% growth that was reported at the same time last year.
Alp Eke, senior economist at NBAD, suggested how these indicators illustrate the UAE’s relatively sluggish economy, one that is not nearly as strong as it used to be. Eke said, “There is a slowdown in economic activity, reflecting the market conditions.”
Furthermore, Eke has indicated how the continuous decline of oil prices could be considered as the main culprit for such a slowdown. “The oil sector is expected to remain stagnant or possibly grow marginally by 1 per cent year-on-year, while non-oil sector is expected to grow by approximately 4.5 per cent year-on-year. Real estate and transport/communication sectors will be the main drivers of growth,” illustrated Eke.
However, Eke has assured that concerns should be so emphasized as the liquidity rates of UAE’s finances still remain at respectable levels. Eke highlights how “The fact that it is increasing is not a good sign, but we are still in safe territory and a possible bank run is highly unlikely. The LTD ratio was at around 87 per cent in June 2014 and has been increasing ever since.”
With loans gradually increasing in popularity, expats who comply with such a trend may need to consider how they are able to overcome long term financial challenges. Operating in both Dubai and Abu Dhabi, Acuma is an independent advisory firm that caters to the financial requirements of their clients. By consulting with their financial advisers, clients are able to be enlightened with solutions such as savings plans or investments as a means to eventually overcome said challenges. Contact Acuma for a free consultation on how their financial advisers are able to delicately assess your financial circumstances before facilitating the most appropriate solution for your specific requirements.
Borrowings across financial institutions in the UAE have seen a significant increase whereas deposits have been heading the opposite direction. Economists suggest that such a trend may indicate a relative slowdown in economic growth, yet liquidity still remains at respectable levels.
As stated through a data report released by the National Bank of Abu Dhabi (NBAD), the UAE’s outstanding credit, which is inclusive of borrowed funds by private individuals, has been estimated at roughly US$370 billion in July 2015 – this is considered to be a 10% increase year-on-year.
On the other hand, the number of state deposits have decreased by 6.2% year-on-year, with several banks declaring how customer deposits have also fallen by 3.1%. Nevertheless, the loan-to-deposit (LTD) ratio, a unit to help measure a bank’s liquidity, is still set at a steady growth. Such LTD have reached 95% in July this year, as opposed to the 87% seen in June last year.
In general, a lack of deposits combined with an increasing habit of loan issuing can be considered as indicators for an economic slowdown. In particular, the indicator, M3, illustrates the amount of money within the UAE’s economy, including currency circulation and bank deposits. The M3 has reached only a meagre 1% year-on-year in July 2015, staggeringly short in comparison to the 13.44% growth that was reported at the same time last year.
Alp Eke, senior economist at NBAD, suggested how these indicators illustrate the UAE’s relatively sluggish economy, one that is not nearly as strong as it used to be. Eke said, “There is a slowdown in economic activity, reflecting the market conditions.”
Furthermore, Eke has indicated how the continuous decline of oil prices could be considered as the main culprit for such a slowdown. “The oil sector is expected to remain stagnant or possibly grow marginally by 1 per cent year-on-year, while non-oil sector is expected to grow by approximately 4.5 per cent year-on-year. Real estate and transport/communication sectors will be the main drivers of growth,” illustrated Eke.
However, Eke has assured that concerns should be so emphasized as the liquidity rates of UAE’s finances still remain at respectable levels. Eke highlights how “The fact that it is increasing is not a good sign, but we are still in safe territory and a possible bank run is highly unlikely. The LTD ratio was at around 87 per cent in June 2014 and has been increasing ever since.”
With loans gradually increasing in popularity, expats who comply with such a trend may need to consider how they are able to overcome long term financial challenges. Operating in both Dubai and Abu Dhabi, Acuma is an independent advisory firm that caters to the financial requirements of their clients. By consulting with their financial advisers, clients are able to be enlightened with solutions such as savings plans or investments as a means to eventually overcome said challenges. Contact Acuma for a free consultation on how their financial advisers are able to delicately assess your financial circumstances before facilitating the most appropriate solution for your specific requirements.