The demand for bank credit in the UAE is on the rise, driven by economic stability and strong investments, despite increasing interest rates, according to the Central Bank of the UAE (CBUAE). The Credit Sentiment Survey for Q2 2024 highlights a positive economic outlook and improving asset quality, leading financial institutions to continue their lending activities. The construction sector experienced the highest growth in credit demand in the second quarter of the year, followed by manufacturing, real estate development, and retail and wholesale trade.
Analysts at Fitch predict that economic diversification will maintain robust credit demand in the UAE, with credit growth expected to increase from 8.4% in 2023 to 9.5% by the end of 2024. The CBUAE data reveals strong demand for trade credit in the second quarter of the year, driven by large government entities and corporations. All emirates witnessed a significant increase in credit demand across various sectors, with expectations of continued strong demand in the coming months, especially in construction, real estate, manufacturing, retail, and wholesale sectors.
The latest data from the CBUAE shows that UAE national banks have increased their investments in local stock markets by Dh4.4 billion over the past year, reaching Dh16.1 billion by the end of May. Foreign banks also boosted their investments in local stock markets, with a 50% increase to Dh300 million. National banks accounted for 94.9% of the total equity investments by banks operating in the UAE, while foreign banks made up the remaining 5.1%. Traditional banks reported investments of Dh14.2 billion, reflecting a 52.7% increase from the previous year.
Islamic banks, on the other hand, saw a decline in their investments in local stock markets, dropping to Dh2.2 billion at the end of May. Abu Dhabi banks led the investments with Dh11.4 billion, followed by Dubai banks with Dh2.2 billion, and banks in other emirates contributed around Dh2.8 billion. The data indicates a positive trend in investments in local stock markets by banks in the UAE, driven by a growing interest in market opportunities and a favorable economic environment.
Overall, the demand for bank credit in the UAE is expected to remain strong in the coming months, supported by economic stability, strong investments, and improving asset quality. With credit growth projected to increase and investments in local stock markets on the rise, banks in the UAE are poised for continued growth and expansion in their lending activities. The positive outlook for various economic sectors, including construction, real estate, manufacturing, retail, and wholesale trade, further reinforces the optimistic outlook for credit demand in the UAE. As the economy continues to diversify and expand, the financial sector is well-positioned to support the growing borrowing needs of businesses and individuals in the country.
