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29 March 2024

Central Bank maintains asset diversity

Published
By Staff

The UAE Central Bank appears to be maintaining its policy of diversifying its investments abroad to avert any loss resulting from sudden financial turbulence in global markets by sticking to a proportionate distribution of its assets.

Its latest monthly balance sheet showed there was growth in the central bank’s two main assets components this year deposits with banks abroad and held to maturity investments. Other minor components remained almost stable.

The report showed the central bank’s total assets abroad surged by nearly Dh45 billion in the first half of 2011 and the increase was in both deposits and securities. Cash and bank balances fell by around Dhtwo billion but loans and advances edged up slightly and other assets remained unchanged.

From Dh175 billion at the end of 2010, held-to-maturity investments swelled to around Dh192.7 billion at the end of June, their highest ever level,

Deposits with banks abroad also soared from Dh44.5 billion to Dh73.6 billion in the same period. Year-on-year, securities were up by around 10 per cent at the end of June and deposits by a whopping 65.4 per cent.

The Central Bank's assets over the past few years have sharply fluctuated, depending on available liquidity and deposits of UAE banks.

They hit an all time high of Dh285 billion at the end of 2007 before they plunged to Dh193 billion at the end of 2008 because of the September global financial distress during that year as it had to inject liquidity into the country’s banking sector that suffered from one of its worst cash shortages.

Assets rebounded to Dh203 billion at the end of 2009 and continued their climb in the following years as a result of higher bank deposits with the central bank.

Analyst said the Central Bank's investments are not vulnerable to the US financial crisis on the grounds these type of securities are immune to price fluctuations.

“Held to maturity investments reflect their name as they are held until they mature…investors in such tools generally do not need to care about fluctuations in their prices that occur in the meantime,” one analyst said.

In a comment on the US financial crisis last week, the central bank sought to reassure the public about its financial position, saying it currently has no US treasury bonds or other financial tools issued by the US government.

“The Central Bank of the UAE currently possesses no US treasury bonds or any other financial instruments issued by the US government due to the very low return on holding these instruments,” the statement said.

“We believe that the debate on the US public debt ceiling issue will end with a compromise solution before the deadline date.”

In previous reports, the Central Bank affirmed it would push ahead with its policy of investment diversification to avert risks and ensure high return from assets.

After a board meeting early this year, the Central Bank expected better performance in fiscal 2010-2011 after a 14 per cent fall in profits in 2009.

The board projected the Central Bank's net profits to surge from around Dh3.18 billion in 2009 to nearly Dh3.67 billion in 2010 and Dh3.7 billion in 2011.

Total revenue for 2011 was put at about Dh4.8 billion while expenses were projected at Dh1.11 billion, including interest on certificates of deposits.

A sharp fall in interest income depressed the Central Bank's net profits by 14.4 per cent in 2009 but its investment income more than doubled through the year.

From Dh3.722 billion in 2008, the Central Bank’s net income dipped to Dh3.184 billion in 2009, the Central Bank said in its annual report.

The decline was caused mainly by a plunge in interest income from a record Dh5.688 billion in 2008 to only Dh461 million in 2009.

But this was partly cushioned by a surge in investment income from about Dh1.539 billion to Dh3.844 billion in the same period.

Interest expenses plunged from around Dh3.188 billion in 2008 to Dh701 million in 2009 while net interest and investment income shrank from nearly Dh4.039 billion to Dh3.614 billion, the report showed.