Bank interest rates on loans of up to 15% per annumTruth Consultancy
SMEs «locomotive» economic growth without «fuel»
Posted: Sunday, October 23, 2016
Joseph Bustnge (Abu Dhabi)
Small and medium-sized companies in the country to face challenges finding financing solutions, at a time when banks find it difficult to finance outside the traditional guarantees for loans system, so up the interest on their loans 15% fixed, per annum, while the economic policy of the state depends, approach to preparing the sector to lead locomotive of economic growth through the levels the next few years.
Experts said the bankers that the amount of funding it gets small and medium enterprises is not commensurate with its size and role in the national economy of the UAE, and the mechanisms adopted in funding are considered traditional and not commensurate with the level of ambition and the expectations placed on this sector.
According to data issued by the Ministry of Economy, the number of small and medium enterprises in the country amounted to 400 thousand companies, representing more than 94% of the number of operating state companies, and provides jobs for more than 86% of the total workforce in the private sector, and contribute more than 60 % of the GDP of the UAE.
According to the data, the loans granted by banks to small and medium enterprises in the state ratio does not exceed 3.8% of the total bank credit portfolio, experts consider that this share is very low and not commensurate with the size of the sector and the number of employees.
Experts believe that the cost of funding rising to very high levels, leaving «locomotive of economic growth» without «fuel», since it is difficult for the vast majority of companies to achieve a return on their investments exceed the cost of bank interest levels. According to data from the sector concerned, it has accumulated debts of these companies and found many of them, prompting the Federation of UAE banks to launch the initiative during the first quarter of this year, it aims to find collective solutions to banks in the state level.
For his part, Amr Menhali Executive Vice President, Head of Islamic Banking at ADCB, said that this sector is very vital for the national economy, but made it clear that the reason for a declining share of the funding received by these companies of the total funds in the market, is because most of the new small and medium-sized companies or a lot of them do not last for long, and the number of companies able to remain very low success of the total number, and on the level of the world, not only in the domestic market, so rising financing risks.
He Menhali: «We at ADCB dividing the sector into several segments, and put them all in one basket», indicating that the Murabaha financing ranging between 5% level, and up to 15%, according to the status and situation of each individual company, according to the risks and the company’s history , the sector in which it invests. He stressed that there is a possibility and an opportunity to expand more in operating in this sector, corporate finance, said: «We believe that there is an opportunity to acquire a larger share in the market from this sector».
Menhali pointed out that banks in cooperation with the government agencies concerned, the study of the situation of the sector in more detail, and to develop solutions that meet the needs of the sector and help it to play a more active role, and at the same time protect depositors and investors’ money in banks.
He said: «Some investors in this sector in the region and the world lack the necessary experience, so the success of small and medium-sized new companies in the world ratio does not exceed 20% of the total number of start-ups, so banks remain cautious and conservative in their dealings with the sector».
A large segment
And Abu Dhabi Commercial Bank said that the SME sector is very broad and diverse sector in terms of the size of companies and the nature of its work and activities, it’s hard to put all the bank’s customers from this sector in one basket.
He explained that it is generally divided financing and loans granted to small and medium companies into several sections, in terms of the size of companies first, and in terms of the nature of the sector in which it operates those companies.
And between the Bank, the average interest rate charged on loans to small and medium-sized businesses rate, which is close to the average market price, starting from 5% (equivalent to 9% interest decreasing almost), and more companies investing or operating in the real estate sector, while the average price interest on companies operating in the industry, equipment and devices sector about 5% to 6% per annum (ranging from 9% to almost 11% interest dwindling Regulations).
The interest rates for small and medium companies operating in the trade sector price, it ranges from 6% to 7% fixed interest rate per annum (equivalent to 11% to 12.7% interest in decreasing every year approximately). The bank said that the interest rate rises to higher levels, depending on the nature of the guarantees provided by small and medium-sized companies that, for those companies that can not or do not have the provision of real estate collateral or mortgages to fixed assets or bank guarantees, or other reliable guarantees in full, the price interest on loans provided to them to rise to about 15% fixed annual interest, and this is equivalent to decreasing interest rate of about 27% per annum.
The bank confirmed that these levels of interest rates on financing and loans to small and medium-sized companies, are prevailing in most banks in the domestic market, noting that the margin of difference between the bank and another may depend on the biography of bank client and the history of his dealings with the bank, financial solvency in general.
He said economic expert Reda Mosallam, Managing Partner of Truth for Economic Consultancy in Abu Dhabi, that SMEs contribute more than 85% of the GDP of non-oil, pointing out that the share of bank financing in the domestic market is much less than the size and role of the developmental and economic on State level.
He said the funding is the biggest challenge for the «Banks generally does not fund this sector, and are reluctant to finance these projects» and therefore without «fuel.»
According to Ministry of Economy data, the loans granted by banks to small and medium enterprises in the state ratio does not exceed 3.8% of the total bank credit portfolio, and is considered the figure experts are very slim, not commensurate with the size of the sector and the number of workers Ver.oodhav: «Banks operating in the domestic market only funded secured projects, and if the financing of small and medium enterprises require very high guarantees, and impose price of high interest rates can not tolerate the owners of those projects, and, if forced those companies to agree to accept bank loans to those conditions, they do so under pressure conditions experienced by, especially in the case of the face of challenges that threaten its existence ». He pointed out that banks must allocate a portion of the credit portfolio to this sector.
He said: «small and medium enterprises facing very difficult challenges, and we must not put a mechanism acceptable to all parties for the financing of this sector, and enable it to grow and develop and carry out economic role is expected of him». He said: «The development of this sector and help it play its role more effectively, requires banks to approve the acceptance of non-traditional collateral, and the introduction of best international practices in this area, such as a feasibility study of the project, and the experience and competence based on the management of those projects, and other applicable mechanisms by ».
For his part, Abu Dhabi Islamic Bank, said that the Murabaha rates for the financing of small and medium-sized companies vary between and another company, according to the guarantees and the size of the company, and the nature of their work and good work between the bank and the company’s relationship with, and other conditions, but the average price of Murabaha is generally between 4% to 9 % per annum (equivalent to 7.25% to 16.25% interest decreasing).
The bank explained that the funding provided by the roof to its customers in the small and medium enterprises also varies between the other company, according to the company’s size and the size of its business and its projects, but the amount of funding up to a maximum of 20 million dirhams.
The bank explained that the guarantees required of small and medium-sized companies to obtain financing, ranging from bank guarantees and mortgages and mortgage equipment, machinery, appliances and cars, as well as personal guarantees.
It is noteworthy that the Federation of the UAE banks earlier announced an initiative to help small and medium-sized companies to overcome the obstacles they face, particularly with regard to loans and funds that have accumulated in the past, and facing difficulties in repayment. The estimated debts of small and medium-sized companies which face difficulties and was threatened fumbling around seven billion dirhams.
The Consultative Council of Chief Executives in the banking union, browse through its second meeting of 2016, the progress made in containing the problem of non-performing small and medium business and corporate loans through the initiative launched by the Banking Association recently in order to support and save these companies.