Banks can deal with fresh exposures: Suwaidi

UAE banks can deal with fresh exposure to debt defaults given their high liquidity and reserves they have built over the past year, Central Bank Governor Sultan bin Nasser Al Suwaidi was quoted on Wednesday as saying.

Suwaidi said the country’s 51 banks are still following a tight credit policy but expected them to resume normal lending after the economic situation improves.

“The UAE banking sector is capable of facing any economic situation in the future, including difficulties by indebted companies or individuals,” he told the semi-official Arabic language daily Al Ittihad.

“The Central Bank is following closely all the developments in the banking sector. I think the capital and reserves controlled by the UAE banks are large and sufficient and the liquidity situation is good.”

Suwaidi said the banks’ strong liquidity position is underscored by a surge in their investment in the Central Bank, with their certificates of deposits swelling by more than Dh6.5 billion in July alone.

“But banks are still cautious in expanding their credit because of the repercussions of the global financial crisis. I believe they will resume normal lending once economic conditions start to improve. For the present period, it seems that caution is the main feature of banks’ lending operations,” he said.

Suwaidi said he expected global interest rates to further decline in the coming stage on the grounds an expected slow recovery in the US economy would impact the global economy.

“Interest rates will likely decline further in global markets due to slackening demand and stagnation. This applies to the UAE and its rates,” he said.

Central Bank figures showed the combined credit extended by the UAE’s 23 national banks and 28 foreign units edged up by only around 0.7 per cent in the first seven months of 2010. Growth was also as slow as 2.4 per cent through 2009 compared with a staggering 32 per cent in 2008.

Deposits with banks jumped by around Dh30 billion in the first seven months of this year to record one of their highest increases in more than two years.

According to Suwaidi, the bulk of the increase was in private sector deposits, which appears to be opting for bank investment instead of funding projects and expansion plans because of the economic uncertainty.

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