UAE 2008 borrowing to exceed 2007 GDP

In the first quarter UAE based companies raised $28 billion, according to Emirates NBD. This includes state-owned entities rasing money for mega projects as well as the private sector. Analysts say this puts the UAE banking sector on target to achieve loan syndication of $150 billion this year, up from $100 billion last year.

Remarkably this is higher than GDP in 2007 which totaled around $146 billion. This shows just how the UAE is leveraging its oil boom for domestic inward investment.

Tighter liquidity in global markets is one reason for the surge in local bank lending. But this week HSBC closed a five-year Dhs2.25 billion dirham-denominated bond, the largest ever from a local financial issuer with strong investor demand in Asia, Europe and the Middle East.

In truth the high oil price is flooding the region with liquidity and foreign investors are keen to participate here, even when times are hard for banks elsewhere. All the same local banks have a cap of 20 per cent on the amount of their loan book that can be invested in real estate, and some banks have apparently already reached their ceiling for the whole of 2008.

That could mean a few applications to increase capital will be made to the UAE Central Bank before long. But as the Emirates NBD figures suggest there is going to be a huge amount of money pumped into the domestic economy this year, up a thumping 50 per cent on 2007, and this will continue to drive the real estate sector forward to say the least.

Indeed, this kind of stimulus with sharply negative real interest rates are a sure-fire reason to think house prices are going to surge far higher this year as the impact of ultra-low US-driven interest rates add fuel to the fire of oil at $120-a-barrel. And a few scandals in the real estate sector will be nothing compared to this economic tsunami.