UAE banks post 4% surge in deposits

Union National Bank at Bank Street Dubai. -KT FILE

 The UAE banking sector deposits surged four per cent to Dh1.47 trillion as at the end of January this year despite a drop in government contribution.
Government contribution to banking sector deposits fell to 10.7 per cent in January 2016 from 12.5 per cent a year ago, Oman Arab Bank (OAB) said in a research note.
The government and government related entities (GREs) together comprise Dh353.3 billion or 24 per cent of the total deposit base in January, down from 25.4 per cent a year ago.
However, this shortfall in GRE deposits was more than offset by the private sector and non-resident deposit growth momentum, said Hettish Karmani, head of research at OAB.
In terms of credit growth, it is widely believed that the sector will show restricted credit growth over medium to long term as a result of depressed oil prices, he said.
"This is largely on the back of anticipation of tightening liquidity as well as the government's austerity measures to curb budget deficits. In spite of this, we believe that the UAE has a number of projects that are nearing completion as well as developments coming up like the Dubai Expo 2020, which will preclude credit contraction," said Karmani.
However, as per UAE Central Bank data, loans in the banking sector increased by Dh11.80 billion with the loans to the private sector increasing by Dh8.2 billion. In the first two months of the year loans in the system have increased by Dh18.20 billion.
The OAB  report observed that the UAE banking sector, like its counterparts within the wider GCC and Mena region, is faced with twin pressures of government austerity measures that will reign in credit growth and tightening liquidity conditions resulting in rising cost of debt.
The cost of debt is rising on the back of tightening liquidity conditions together with rising US Fed policy rates feeding into the UAE economy due to the US dollar-dirham peg, OAB report said.
The research note pointed out that the banking sector has made fair gains on equity investments as equity markets flourished over the previous few years in a low interest rate environment.
"Since UAE's banking sector has a fairly large exposure to construction and real estate (at 17 per cent as at the end of 2015), the sector is expected to see a negative impact either through fair value impairment of investment properties and/or rising non-performing assets as real estate prices in the UAE are expected to correct in lieu of sustained low oil prices," said the report.
In 2015, the total assets of banks operating in the UAE increased by 7.4 per cent to reach Dh2.47 trillion mainly on the back of a 7.8 per cent increase in credit, reaching Dh1.49 trillion by the end of December 2015.
The total deposits of resident and non-resident customers with banks operating in the UAE increased by 3.5 per cent, reaching Dh1.47 trillion in 2015. Resident deposits increased by 2.6 per cent to Dh1.30 trillion. Non-resident deposits also increased by 11.4 per cent to Dh171.5 billion, compared to the Dh 154 billion at the end of the fourth quarter of 2014.
As per the UAE Central Bank, the UAE banking sector, based on indicators in 2015, remains well capitalised with the average Capital Adequacy Ratio at 18.3 per cent and average Tier 1 capital at 16.6 per cent as at the end of final quarter 2015. The central bank's minimum requirement for CAR is 12 per cent and for Tier 1 capital is eight per cent.
- issacjohn@khaleejtimes.com

Issac John

issacjohn@khaleejtimes.com