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29 March 2024

Government cuts bank deposits by Dh25bn

Private sector and individual deposits offset decline in first 7 months. (SUPPLIED)

Published
By Staff

The UAE government slashed its deposits with local banks by around Dh25 billion in the first seven months of 2010 although oil prices have remained at one of their highest levels in more than a year, official data have shown.

The cut depressed the federal government’s deposits with the country’s 23 national banks and 28 foreign units to their lowest level in nearly two years, showed the figures by the Central Bank.

From around Dh192.6 billion at the end of 2009, government deposits with the UAE banking sector dipped to nearly Dh167.5 billion at the end of July.

The deposits had climbed to one of their highest levels of nearly Dh198.2 billion at the end of 2008 before they reversed that trend and started to steadily decline in the following months, the Central Bank said in its latest monthly bulletin.

Analysts cited several reasons for the fall including withdrawal of cash for immediate project funding and meeting a rise in spending within the country’s ongoing fiscal stimulus to counter the impact of the global economic crisis.

“The government also sometimes withdraws funds to invest them abroad in high-yield securities,” an Abu Dhabi-based financial analyst said.

Government deposits with UAE banks have traditionally increased when there was a rise in its oil receipts and the experts believe the decline in those deposits in the first seven months despite strong oil prices means the UAE is resorting to local investment rather than its overseas funds to meet spending commitments.

The UAE earned a record $87 billion (Dh319 billion) from hydrocarbon exports in 2008 after oil prices shot up to their highest average of around $95 a barrel.

Official US estimates showed the UAE’s earnings in the first nine months of 2010 stood at $49 billion (Dh180 billion) and analysts believe the total income will far surpass the 2009 earnings of around $52 billion (Dh 190.8 billion) on the grounds crude prices could average above $70 this year against $60 in 2009.

The fall in government deposits in the first seven months was more than offset by a surge in deposits by the private sector and individuals.

Central Bank data showed private sector deposits gained nearly Dheight billion to reach Dh380.8 billion at the end of July compared with Dh372 billion at the end of 2009. Individuals’ deposits soared by around Dh22 billion to reach one of their highest levels of Dh281.2 billion from Dh259.9 billion in the same period.

The increase boosted total resident deposits with the banks to around Dh898.2 billion at the end of July from Dh893.9 billion at the end of 2009. Overall deposits, including non-resident deposits, grew to about Dh998.8 billion from nearly Dh982.5 billion in the same period, according to the Central Bank.

UAE banks, which control the largest asset base in the Arab world, have been offering higher rates as part of a drive to attract deposits although they are sticking to their post-crisis policy of squeezing their lending coffers.