May 5 (Bloomberg) -- Union National Bank PJSC, whose shareholders include the governments of Abu Dhabi and Dubai, said new retail loan rules that came into effect May 1 should have been staggered to reduce their adverse impact.
The guidelines “will squeeze lending to consumers in a very big way, although it is good for the long-term,” Mohammad Nasr Abdeen, UNB’s chief executive officer, said in an interview in Abu Dhabi on May 3. The decline in lending will have a “negative impact” at a difficult time for the economy, and the central bank could have made the changes in stages, he said.
The United Arab Emirates’ central bank issued new guidelines in February on consumer loans and fees as well as capped personal loans at 20 times a borrower’s monthly salary in a bid to control lending and curb charges. The repayment period for personal loans can’t exceed 48 months, while overall installments for all loans, including personal, car, housing and credit cards, must not exceed 50 percent of a borrowers’ gross salary and any regular income, the bank said.
The U.A.E. economy, the Arab world’s second biggest, is rebounding from the global credit crisis, which hurt its property industry and slowed investments. Bank lending increased 1.3 percent in 2010 following a 2.4 percent rise in 2009 after climbing by more than 30 percent annually from 2005 to 2008.
UNB’s retail loan book “will definitely shrink but it is not going to affect us in a big way” as the retail lending is not large, Abdeen said. “Profitability will certainly be affected if it is not compensated by some other business.”
Lending to Rise
The bank expects overall lending to rise by between five and 10 percent this year and deposits by 10 percent, Abdeen said. Analysts’ consensus estimate of UNB’s 2011 profit of 1.43 billion dirhams ($390 million) is “not far from our expectations,” he said.
UNB reported a 17 percent increase in profit in 2010 to 1.35 billion dirhams. First-quarter profit rose 20 percent to 456.4 million dirhams as loan-loss charges dropped.
Provisions for loan losses in the remaining three quarters will be about the same or “maybe slightly less” than the first quarter’s 69 million dirhams, Abdeen said. The bank’s bad loans ratio is expected to decline from the first quarter’s 1.4 percent if there are no surprises, he said.
Union National Bank is the U.A.E.’s seventh biggest bank by assets. UNB’s loan book shrank 0.5 percent to 56.3 billion dirhams at the end of March from December, while customer deposits rose 2.8 percent to 59.6 billion dirhams.
The bank may sell a bond this year if the pricing conditions are favorable to raise long-term funds, Abdeen said. The bank has enough cash to repay a $1 billion syndicated loan that matures at the end of the year, he said.
The shares fell 1.1 percent to close at 3.65 dirhams on the Abu Dhabi bourse today. They have risen 28 percent this year, compared with a 6.9 percent rise in the exchange’s bank and finance index.
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