Experts Warn Of UAE Small Biz Banking Failure

The UAE has seen a massive influx in financial services to supports its SME sector from banks and startups alike, but according to a new warning from one expert, the trend could soon be over.

The consolidation of the nation’s banking industry will lead to a decline in SME lending, and slowed economic growth will mean small businesses will be considered higher risk by the banks, said Cedar Management Consulting International Chairman Sanjiv Anand.

“SME lending in the UAE is approximately 5 percent of all lending in the market,” Anand said in an interview with The National. “There are about 300,000 SMEs in the country but only a third, approximately 100,000, are bankable.”

He added that despite the recent upswing in small business financing, lenders will lessen their willingness to approve small business loan applications, an outcome he said has been hinted at by the narrowing gap between interest rates seen for small business borrowers and large corporate ones.

Another expert, however, said that while small business banking is likely to slow, “there is no need for panic.”

“We will possibly be lending slightly less to SMEs in 2015 than we did in 2014,” said Abu Dhabi Islamic Bank Head of Business Banking Mahdi Kilani. “We are looking for quality in the SME market. It can be a risky sector, so we want to make sure that we pick the right companies.”

According to reports published Sunday (July 5), the UAE has a reputation for having an oversaturated banking sector. In 2013, the nation had 51 banks — just 24 less banks than were in Saudi Arabia, Kuwait, Qatar and Oman combined. Small businesses have seen the number of lenders in the nation increase from five or six in 2008 to nearly 20 today.

But economic growth is starting to putter out; according to the latest International Monetary Fund figures, overall economic growth for the UAE will likely hit 3 percent this year compared with 4.6 percent seen the year prior. Similarly, bank earnings are expected to level out and grow in the single digits this year. Standard & Poor’s predicted just an 8 or 9 percent growth in the lending sector for the UAE.

According to the National Bank of Abu Dhabi’s managing director of global commercial banking, Nilanjan Ray, the industry is likely to see a shift towards flow businesses like trade financing for SMEs rather than only lending. The small business industry, Ray added, “continues to score very well using such parameters.”