UAE Banks Tighten Lending Amid Ongoing Iran Conflict
UAE companies struggle to raise fresh loans as war drags on
The Economic TimesImage: The Economic Times
As the Iran conflict continues into its third month, banks in the United Arab Emirates (UAE) are adopting a more cautious approach to lending. New credit approvals, particularly in sectors like real estate and construction, have significantly decreased due to rising geopolitical risks, despite the banking sector remaining well-capitalized.
- 01Bank lending in the UAE has dropped by up to 90% for new approvals.
- 02Lenders are tightening underwriting standards amid rising geopolitical uncertainty.
- 03Existing loans remain largely unaffected, but new lending is significantly slowed.
- 04Businesses are turning to private lenders for funding at higher costs.
- 05Banks have increased provisioning by 52-68% year-on-year due to the ongoing conflict.
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As the Iran conflict extends into its third month, banks in the United Arab Emirates (UAE) are becoming increasingly cautious in their lending practices. Industry executives report a significant decline in new credit approvals, particularly in sectors like real estate, construction, and manufacturing. Some banks have seen lending volumes drop by up to 90%, with one major bank reducing its monthly disbursement from approximately AED 209 million to around AED 30-40 million. The tightening of lending policies reflects a defensive stance by banks in response to geopolitical volatility, despite the UAE banking system being well-capitalized. Businesses, especially those in capital-intensive sectors, are now seeking funding from private lenders at much higher borrowing costs, as traditional financing options dwindle. The increase in provisioning by 52-68% year-on-year indicates banks' precautionary measures against potential financial stress due to the ongoing conflict.
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The tightening of lending practices is likely to hinder business growth and investment in key sectors, affecting job creation and economic stability in the UAE.
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