While the average amount spent per credit card transaction in the UAE is up 15-20 per cent year-on-year in the first quarter of 2012, extracting value from the consumer boom is not easy for retail banks, say experts.

'People are spending more than they were last year and there is more buoyancy and confidence in the market,' said Vipen Sethi, chief executive of Landmark Group, a retail conglomerate with a presence in 17 countries across the Middle East, Africa and South Asia.

Traditionally, heightened consumer spending would be a boon for retail banks as it would create more demand for credit - whether it be personal or car loans or credit card spending.

Lessons from past excesses has made both borrowers and the country's regulator - the UAE central bank - more cautious towards debt, meaning that while lending is growing, the growth is moderate and banks are earning less from what they do lend.

However, the buoyancy being created by the levels of consumer spending mean banks can still expect to see moderate growth this year from their retail operations.

'While I can't say specific numbers, the bottom line has been extremely positive in the first few months of the year,' said Arup Mukhopadhyay, head of consumer banking at Abu Dhabi Commercial Bank, the UAE's third largest bank by market capitalisation.

Shopping has always been at the heart of life for Dubai's expatriate community, given the heady cocktail of tax-free salaries, the presence of a large number of outlets to spend that cash and the fact it's too hot to do anything outside for at least three months of the year.

The number of shoppers has also been swelled in the last 18 months by tourists flocking to the emirate, a perceived safe-haven in a region rocked by the events of the Arab Spring.

'From the aggregate average of feedback from clients in the sector, I would say most retailers are growing at a rate of at least 15 per cent,' Nick Levitt, head of commercial banking UAE at HSBC, said.

'The spends here are much higher than the averages worldwide, with the average about Dh500 ($140) per ticket. In Asia, the average ticket is $22-23,' said Farhad Irani, head of retail banking at Mashreq.

But while spending is rocketing, bankers say consumers have learnt from the excesses of the pre-crisis years, when expats would be forced to skip the country for fear of being arrested and jailed for defaulting on credit cards - at the height of the crisis in 2009, up to 2,500 customers per bank per month, a senior official at RAKBank told Reuters at the time.

'On this side of the 2009 crisis, customers have become more cautious so there is definitely a tendency to deleverage themselves,' said Mukhopadhyay.
This caution is not only reflected in how people manage their credit cards but also the levels of debt they take on in the form of personal loans, he added.

According to data from the UAE central bank, total personal lending in the country grew by just 0.7 per cent year-on-year in March to Dh253.8 billion. The figure is also well down on the Dh909.4 billion lent out by UAE banks in September 2008 - at the height of the previous boom.

Another knock-on effect from the crisis is the subdued property markets in the UAE, with prices still yet to bottom out in Abu Dhabi.

Dubai has seen demand and prices pick up in some more fashionable areas but, according to one banker who didn't want to be named, much of the buying is being done by foreign investors - predominately from Russia and Arab Spring-affected countries - and settled fully in cash.

Therefore, mortgage demand in the UAE is still well down on the pre-crisis peak - Dh600-700 million per month now versus Dh1.4 billion in 2007, according to Irani at Mashreq, Dubai's second-largest lender by market value.

Caution is also being exuded by the UAE central bank, who don't want a repeat of the delinquency rates on unsecured debt seen at the height of the troubles in 2009 and early 2010 - high-teens to early-twenties percent across the industry versus around half that level now, according to Irani.

Since the beginning of 2011, the regulator has brought in separate guidelines which control individual debt burden ratios, meaning monthly repayments on personal lending cannot exceed 50 percent of income, and cap bank charges, such as basic transaction activities on bank accounts.

'Both factors have reduced the retail banking revenue pool by around 10-15 per cent - probably closer to 15 per cent,' Mukhopadhyay said. – TradeArabia News Service