Bank deposits sharply outpace loans

Deposits with UAE banks have grown at a much higher growth than loans over the past year mainly because of credit tightness and the increase largely upset the loan-to-deposit ratio, official figures have shown.

Provisions allocated by the country’s 23 national banks and 28 foreign units for bad loans also edged down for the first time in nine months while certificates of deposits (CDs) soared to one of their highest levels.

The figures by the central bank showed deposits with the UAE’s 51 banks surged year-on-year by nearly 16 per cent at the end of April while domestic credit increased by around 3.1 per cent in the same period.

In the first four months of this year, deposits swelled by nearly 7.5 per cent to a record high of around Dh1,128billion from Dh1,049.6 billion at the end of 2010 while loans edged up by 2.2 per cent to Dh1,054 billion from Dh1,031 billion.

The rapid rise in deposits sharply upset the loan-to-deposit ratio which reached one of its highest levels of around 1.05 at the end of April 2010. The ratio dipped to nearly 0.93 at the end of April 2011, the report showed.

Analysts attributed the quicker pace of growth in deposits to economic recovery in the UAE over the past year and to the fact that banks are still reluctant to resume normal lending following the 2008 global fiscal distress and their exposure to regional debt default problems.

Despite slow credit, banks recorded a 4.7 per cent growth in their net earnings in the first quarter of 2011 compared with the first quarter of 2010 as a result of an increase in their investment in central bank’s CDs, return from services and commissions and slower growth in bad loan provisions.

The rise in profits extended income growth through 2011 following a difficult financial period in the aftermath of the 2008 global fiscal crisis and exposure of many banks to regional debt defaults.

Balance sheets of 14 national banks that have issued quarterly results showed their net earnings increased to around 5.72 billion during January-March this year from Dh5.46 billion during January-March 2010.

Compared with the fourth quarter of 2010, the banks boosted income by a staggering 59 per cent as it stood at Dh3.58 billion during that period.

The central bank report showed high profits were reflected in slowing non-performing loans (NPLs), which slipped to Dh46.5 billion at the end of April from Dh46.6 billion at the end of March. NPLs grew by around Dh2.3 billion in the first quarter of 2011 compared with nearly Dhfour billion in the same period of 2010.

In a recent study, Kuwait’s Global Investment House expected better performance by UAE banks through 2011 due to an improvement in the domestic economy and some growth in lending that had been stagnant over the past two years due to banks’ tightness and poor private sector appetite for credit.

Analysts said the better performance in the first quarter of this year was also a result of higher investment in central bank’s CDs.

The report showed CDs issued by the central bank to local banks totalled around Dh118 billion at the end of April, an increase of nearly Dh24 billion from their level of about Dh94 billion at the end of 2010. A large part of the increase was in Shariah-compliant Islamic CDs, with their balance at the end of April soaring to nearly Dh12 billion from Dh4.6 billion at the end of 2010.

At the end of April, the banks’ combined capital gained nearly Dh14 billion to reach Dh270.3 billion against Dh256 billion at the end of 2010, maintaining the banks’ position as having the largest capital base in the Arab world. Their total assets of Dh1,695.3 billion at the end of April were also the largest in the region.

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