UAE Banking Sector’s Credit Growth Surges Despite Rising Interest Rates

UAE Banking Sector’s Credit Growth Surges Despite Rising Interest Rates

June 25, 2023 102

Credit growth in the UAE’s banking sector, a crucial indicator of overall economic health, witnessed a significant surge, reaching nearly Dh2.0 trillion in the first quarter. Despite the backdrop of rising interest rates, this robust growth signifies the resilience of the business sector and highlights the positive trajectory of the UAE’s economy. The Central Bank of the UAE (CBUAE) reported a 0.9 percent quarter-on-quarter (q-o-q) increase in gross credit, totaling Dh1.895.8 trillion, while customer deposits rose by 3.8 percent q-o-q and 14.9 percent year-on-year (y-o-y), reaching Dh2,306.0 billion. Furthermore, total assets of banks operating in the country increased by 2.6 percent q-o-q, amounting to Dh3.7647 trillion by the end of the first quarter of 2023.

The significant surge in credit growth in the UAE’s banking sector is a clear indication of the resilience and strength of the business sector. Despite the recent rise in interest rates, businesses have shown confidence in expanding their operations and taking advantage of growth opportunities. This positive trend in credit growth reflects a robust economic environment and suggests that businesses are well-positioned to navigate any challenges posed by increasing borrowing costs.

The substantial rise in customer deposits further reinforces the positive sentiment in the UAE’s banking sector. With a 3.8 percent q-o-q increase and a notable 14.9 percent y-o-y growth, customer deposits have reached a substantial Dh2,306.0 billion. This growth in deposits indicates a healthy savings culture among individuals and businesses, reflecting confidence in the stability of the UAE’s banking system. It also provides banks with a strong liquidity base to support lending activities and contribute to the overall economic growth of the country.

The report from the CBUAE highlights a robust growth in the total assets of banks operating in the UAE. The 2.6 percent q-o-q increase has propelled the total assets to Dh3.7647 trillion by the end of the first quarter of 2023. This growth can be attributed to a combination of factors, including expanding loan portfolios, prudent financial management, and a diversified range of banking services. Strong bank assets not only support the growth of the banking sector but also contribute to the overall stability of the UAE’s economy.

The surge in credit growth and the steady rise in customer deposits in the UAE’s banking sector have broader implications for the country’s economy. Increased credit availability provides businesses with the necessary funds to invest, expand their operations, and drive economic growth. The rise in customer deposits demonstrates a strong savings culture, which can be channeled into productive investments. These factors, combined with the growing total assets of banks, paint a positive outlook for the UAE’s economic stability and prosperity.

Despite the recent increase in interest rates, the UAE’s banking sector has demonstrated resilience and adaptability. Businesses have managed to secure credit and continue their growth trajectory, indicating that they are equipped to handle the changing cost of borrowing. This resilience can be attributed to effective risk management practices, strong financial fundamentals, and the ability of banks to provide competitive interest rates to borrowers.

The positive performance of the UAE’s banking sector can also be attributed to the government’s support and the robust regulatory framework in place. The government’s initiatives to stimulate economic growth, attract investments, and diversify the economy have played a significant role in fostering a favorable business environment. Additionally, the proactive measures taken by regulatory authorities to ensure sound banking practices have contributed to the stability and growth of the banking sector.

The surge in credit growth, the steady rise in customer deposits, and the growth in total assets highlight the strength and resilience of the UAE’s banking sector. Despite the impact of rising interest rates, businesses have managed to secure credit, demonstrating their confidence in the country’s economic stability. The positive performance of the banking sector bodes well for the overall economic growth of the UAE and underscores the effectiveness of government support and the robust regulatory framework. As the UAE continues to prioritize economic diversification and attract investments, its banking sector remains a crucial pillar for sustainable development and prosperity.

Swati Gupta
swati
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