Foreign banks' deposits plunge Dh115bn

Foreign banks have slashed their deposits in the UAE by nearly Dh115 billion since the end of 2008 as they continued to push out of the region following weakening speculation about an appreciation of local currencies against the US dollar, according to official figures.

From around Dh175.7 billion at the end of 2009, their deposits with the UAE’s 51 banks plunged to nearly Dh60.7 billion at the end of June, showed the figures published in the Central Bank’s latest monthly bulletin.

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 Dh32 billion although they recorded their first increase of about Dhseven billion in July in more than a year, the 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 plunge in the foreign banks’ deposits at the end of July pushed them to one of their lowest levels since mid 2006, when they stood at around Dh75 billion.

They swelled to nearly Dh96.7 billion at the end of 2006 and shot up to about Dh205 billion at the end of 2007. In April 2008, they climbed to a record high level before they began to fall back in the aftermath of the crisis to reach nearly Dh175.6 billion at the end of 2008, according to the Central Bank.

“These funds were mostly speculative money, or in other words, hot money…they were here for speculation in the stock market and to make quick profits from bank deposits in case the UAE appreciated its currency against the US dollar,” said Humam Al Shamma, financial analyst at the Abu Dhabi-based Al Fajr Securities, a key UAE stocks and investment firm.

“I think the bulk of those funds, if not all, have left the country…there has been a quick decline in those funds over the past months but you will see a sharp slowdown through 2010 as they are nearly out.”

The decline in those deposits depressed the overall foreign liabilities of the UAE’s banking sector from a record high of Dh320.9 billion at the end of 2007 to Dh282.5 billion at the end of 2008 and about Dh251 billion at the end of 2009. But they recovered to around Dh268.7 billion at the end of July.

In contrast, the UAE banks’ foreign assets climbed from around Dh196 billion at the end of 2007 to Dh203 billion at the end of 2008 and Dh227 billion at the end of July. This narrowed the banks’ debtor status to Dh41 billion at the end of July from Dh79 billion at the end of 2008 and Dh124 billion at the end of 2007.

Despite the withdrawal of those funds, overall deposits with the UAE’s 23 national banks and 28 foreign units gained around Dh16 billion to swell to nearly Dh998 billion at the end of June from about Dh982 billion at the end of 2009 and nearly Dh912 billion at the end of 2008.

The rise was a result of a sharp increase in individual deposits, which grew to nearly Dh281 billion at the end of July from Dh259 billion at the end of 2009. Private sector deposits grew to Dh380 billion from Dh372 billion while government deposits plunged to Dh167 billion from Dh192 billion.
 

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