Credit growth in the UAE rose on the back of increased economic activity both in the government and private sectors with lending witnessing a decent increase during the third quarter of 2017.
The Central Bank of the UAE's latest data released on Wednesday showed that gross credit reached Dh1.58 trillion by the end of the third quarter of 2017 from Dh1.545 trillion during the same quarter last year, an increase of 2.3 per cent.
Barring government-related entities (GREs), lending by banks to all other sub-sectors recorded growth during the quarter. Domestic credit growth expanded 1.6 per cent to Dh1.447 trillion.
While lending to private sector witnessed an uptake of 2.4 per cent year-on-year during the third quarter of 2017, reaching Dh1.07 trillion. Lending by the financial institutions to government increased 4.3 per cent to Dh181.5 billion by the end of last quarter. Loans to individuals in the UAE totalled Dh335.1 billion, an increase of 3.3 per cent.
The increased lending to the government and private sector reflected that the non-oil private sector expanded while the government also continued to invest in infrastructure development projects.
Mik Kabeya, an analyst at Moody's Investors Service, said the UAE banking system would see robust credit growth underpinned by strong capitalisation, stable funding and liquidity conditions.
Emirates NBD's Purchasing Managers' Index (PMI) for the UAE and Dubai Economy Tracker for November showed solid upturn in non-oil private sectors.
Khatija Haque, head of Mena Research at Emirates NBD, said that the UAE PMI rose to 57.0 in November from 55.9 in October, signalling a faster rate of growth in the non-oil private sector. This was the highest reading since August, and the second highest reading this year.
"Purchasing activity and accumulation of pre-production inventories has been sharply higher year-to-date compared with last year. While some of this might be attributed to pre-VAT stockpiling, survey respondents indicated they had boosted inventories ahead of an expected upturn in sales," she said in the note.
According to Dubai Economy Tracker, the November survey showed solid growth in Dubai's economy last month, at a similar pace to the previous two months.
Dubai government also this week issued its 2018 budget focused heavily on the infrastructure development related to Expo 2020. Going forward, Haque believes that public investment and spending, particularly on infrastructure, will be a key driver of economic growth in the emirate next year.
According to Central Bank, the overall outlook regarding the soundness of the banking sector remains positive during the third quarter of 2017. Banks' specific provisions for non-performing loans increased from Dh81.7 billion at the end of June 2017 to Dh83.1 billion in the third quarter of 2017, thereby ensuring that NPLs are fully provisioned.
Bank deposits at banks increased 5.8 per cent year on year to Dh1.595 trillion by Q3 2017 from Dh1.508 trillion for the same period last year, the apex bank said in its quarter report.
According to Central Bank figures, the percentage of the number of presented and returned cheques increased from 4.3 per cent in Q2 2017 to 4.6 per cent in Q3 2017. The total amount of returned cheques from the total presented amount also increased to five per cent in Q3 2017 compared to 4.5 per cent in Q2 2017.