Certificates of deposits (CDs) held by UAE banks jumped by more than Dh12 billion in February to record their largest increase in more than two years and indicate banks are still risk-averse, central bank data showed on Tuesday.
Deposits with the country’s 23 national banks and 28 foreign units also shot up by more than Dh22 billion while loans appeared to be gaining pace as they swelled by nearly Dhsix billion through February, the figures showed.
The surge in deposits and CDs boosted the combined assets of the UAE’s 51 banks to a record high of more than Dh1,657 billion at the end of February, maintaining its position as having the largest banking system in the Arab region.
By contrast, non-performing loan (NPL) provisions by banks appeared to he slowing down following a steep rise in such reserves, with their level edging up by only around Dh100 million during February.
The CD figures showed UAE banks are turning heavily to the central bank to invest excess liquidity and offset a sharp slowdown in their credit to the private sector which they now see as a high-risk field.
From around Dh90.3 billion at the end of January, the total CDs issued by the central bank and held by the country’s banks swelled to nearly Dh102.5 billion, the biggest monthly increase in at least two years.
The trend is a reversal of a policy that followed the eruption of the 2008 global fiscal crisis, when banks withdrew massive funds from the central bank to cushion a severe liquidity shortage.
From a record high of around Dh173.5 billion at the end of 2007, the banks’ investments in the central bank’s CDs dived to only Dh47.1 billion at the end of 2008 before they started to recover through 2009 with the improvement in their liquidity. At the end of 2009, they rebounded to Dh71.4 billion.
The CD investments fluctuated through 2010 but remained far higher than at the end of 2008 before they peaked at a two-year high at the end of February.
The surge in CD value also followed a decision by the central bank early this year to issue Islamic CDs worth Dh3.5 billion.
In recent statements, officials said the central bank had issued the Shariah-compliant CDs to Islamic and conventional banks within plans to create new investment tools and keep those banks away from the foreign markets.
“These CDs are open to all banks operating in the UAE, including conventional and Islamic banks…as for Islamic banks, they will be able to improve management of their liquidity and I think these CDs constitute a major step towards the development of Islamic banking in the UAE,” said Hadef Al Shamsi, executive director of the central bank’s treasury department.
The figures showed deposits with UAE banks surged from around dh1,057 billion at the end of January to Dh1,079 billion at the end of February.
Loans and advances grew from about Dh1,043.4 billion to Dh1,049.2 billion while total assets leaped from Dh1,627.9 billion to Dh1,657.7 billion.
NPL provisions edged up slightly from around Dh45.7 billion to Dh45.8 billion after a rapid growth over the past two years due to the global financial crisis and severe regional debt default problems.
The report showed growth in personal loans remained relatively slow as they rose by only around Dh300 million to Dh247.7 billion at the end of February.
The banks’ combined capital slipped by around Dh 500 million to Dh275 billion while their capital adequacy remained as high as 20.8 per cent at the end of 2010, far above the international adequacy requirement.
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