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29 March 2024

Banks’ deposits with CB up Dh40 bn in H1

Published
By Nadim Kawach
UAE banks boosted their deposits with the central bank by nearly Dh40 billion in the first half of 2011 to reach their highest level since the end of 2007, largely boosting the central bank’s assets, according to official data.
 
Certificates of deposits (CDs) held by UAE banks jumped by around Dh24 billion to record their largest increase in more than two years and indicate banks are still risk-averse, the central bank said in its June bulletin released on Wednesday.
 
Deposits by the country’s 23 national banks and 28 foreign units shot up by 25.6 per cent to Dh196.2 billion at the end of June from Dh156.5 billion at the end of 2010. Their level in June was the highest since they climbed to an all time high of around Dh231.1 billion at the end of 2007.
 
Banks’ deposits with the central bank were only around Dh58 billion at the end of 2006 before they shot up to the record high level a year later. They again dived to Dh99 billion at the end of 2008 before they started to rapidly climb to reach Dh137.8 billion at the end of 2009 and Dh156.5 billion at the end of 2010.
 
CDs issued by the central bank to the country’s 51 banks also recorded a rapid rise during that period after plunging from Dh173 billion at the end of 2008 to Dh47 billion at the end of 2008. They soared to Dh71 billion at the end of 2009 and Dh94 billion at the end of 2010 and continued their climb to reach Dh118.1 billion at the end of June 2011, the report showed.
 
The surge in deposits boosted the central bank’s assets to one of their highest levels of around Dh273.5 billion at the end of June compared with nearly Dh228 billion at the end of 2010, an increase of Dh45 billion.
 
The deposit and 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.
 
The growth 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.
 
Banks in the UAE and other Gulf oil producers have maintained a stringent lending policy since the eruption of the 2008 global fiscal distress and regional debt default problems a year later. The police followed a boom in lending during 2007 and most of 2008, when domestic credit leaped by at least 30 per cent.
 
The central bank report showed credit by UAE banks grew by only around 0.9 per cent in the first half of 2011 to reach Dh981 billion at the end of June from nearly Dh972 billion at the end of 2010.
 
The slackening credit activity at home has prompted regional banks to look for other sources of income, including foreign markets.
 
The report showed UAE banks boosted their foreign assets by Dh27 billion to Dh260 billion at the end of June from Dh233 billion at the end of 2010. The bulk of the increase was in their loans and deposits with foreign banks as they swelled from Dh62 billion to Dh77 billion and from Dh76 billion to Dh81 billion.
 
Heavy exposure by the UAE banks to defaulting firms has triggered a massive provisioning drive, with their loan loss provisions soaring to nearly Dh48.4 billion at the end of July 2011 from Dh19.7 billion at the end of 2008.
 
High provisions allied with a steep fall in credit to adversely affect the banks’ performance through 2009 and most of 2010.
 
Balance sheets of 16 listed national banks showed their net profits plunged by around 20.6 per cent to Dh14.87 billion in 2009 from Dh18.71 billion in 2008. But earnings recovered by nearly 10.6 per cent to Dh17.6 billion in 2010.