Foreign banks boost UAE deposits

Foreign banks appear to be returning for investment in the UAE after siphoning out more than Dh100 billion through 2009 and the first half of 2010 apparently because of better local economic conditions, according to official data.

The banks had pulled out of the country with nearly Dh122 billion during that period as their deposits with the country’s 51 banks plunged from around Dh175 billion at the end of 2008 to Dh53 billion at the end June.

But the deposits rebounded by around Dhseven billion to Dh60.7 billion in July and continued their growth to reach Dh64.2 billion at the end of August, the Central Bank said in its August statistics bulletin.

“It seems that foreign banks are coming back to the UAE because of better economic prospects,” said Fadi Kiswani, a stockbroker at the Sharjah-based Sharhan Securities. “They are bringing their funds in here perhaps for investment in equity and other sectors…as you notice, many listed companies are rebounding into profits and this makes equity investment more attractive.”

Funds siphoned out by foreign banks reached their height during 2009, when they stood at around Dh83 billion. In the first seven months of 2010, they stood at nearly Dh30 billion although they recorded their first increase of about Dhnine billion in July and August in more than a year, the Central Bank report showed.

The deposits by foreign banks had hit an all time high of nearly Dh211 billion at the end of April 2008 at the height of speculation that the UAE and other Gulf oil producers would appreciate their currencies against the US dollar.

Speculation began to recede after the UAE Central Bank repeatedly ruled out such plans and came almost to a standstill last year after the country decided to withdraw from the monetary union launched by Saudi Arabia, Kuwait, Qatar and Bahrain. The other GCC member, Oman, also pulled out in late 2007.

The drive by speculators to pull their funds out of the UAE and other Gulf nations gained momentum after the eruption of the 2008 global fiscal crisis as foreign banks struggled to meet commitments and bridge a liquidity gap at home.

The recovery in those deposits boosted the overall foreign liabilities of the UAE’s banking sector by nearly Dh20 billion to Dh275 billion at the end of August from around Dh255 billion at the end of June.

Foreign assets also climbed from around Dh216 billion at the end of June to Dh228 billion at the end of August. This boosted the country’s net foreign assets by around Dhfour billion to Dh47.9 billion from Dh43.8 billion.

Overall deposits with the UAE’s 23 national banks and 28 foreign units climbed to nearly Dh1,004 billion at the end of August from Dh985 billion at the end of June.

The rise was a result of an increase in individual deposits, which grew to nearly Dh278 billion at the end of August from Dh276 billion at the end of 2009. Private sector deposits swelled to Dh376 billion from Dh371 billion while government deposits grew to Dh177 billion from Dh172 billion.
 

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