Government deposits up Dh16bn in 10 months

The UAE government boosted its deposits with banks by nearly Dh16 billion in the first 10 months of 2010 and this allied with higher deposits by other institutions to boost total bank deposits to a record high.

From around Dh186 billion at the end of 2009, deposits by the federal government with the country’s 51 banks soared to nearly Dh202 billion at the end of October, according to data by the Central Bank.

The deposits had peaked at around Dh221 billion at the end of 2008 as the government deployed its massive financial muscle to support the banking system following the eruption of the global fiscal crisis in September that year.

The deposits slumped to Dh207 billion at the end of the first quarter of 2009 and fluctuated in the following months to end the year at about Dh186 billion.

They picked up again to reach Dh188 billion at the end of the second quarter of 2010 and Dh195 billion at the end of the third quarter.

Analysts said the fluctuations in the deposits was probably because of the government’s withdrawal of cash for immediate project funding and meeting a rise in spending within the country’s fiscal stimulus to counter the crisis.

“It could also be withdrawing part of the funds to invest in high yielding securities abroad or other sectors…some of them could have also been used to meet other foreign obligations,” said an Abu Dhabi-based financial analyst.

Government deposits with UAE banks have traditionally increased when there was a rise in its oil receipts and the experts believe a fall in those deposits in some months when oil prices were high means the UAE was resorting to local investment rather than its overseas funds to meet spending commitments.

The UAE earned a record $91 billion from hydrocarbon exports in 2008 after oil prices shot up to their highest average of around $95 a barrel.

US official estimates showed the UAE’s earnings in the first 11 months of 2010 stood at $61 billion and analysts believe the total income could reach $65 billion through the year compared with around $52 billion in 2009.

The rise in government assets with the country’s 23 national banks and 28 foreign units boosted their combined deposits to a record high of Dh1,053 billion at the end of October to push them above loans for the first time in two years.

Despite the surge in deposits, lending by the country’s banks has remained dormant as they appear to be sticking to a tight credit policy following the crisis and regional debt default problems. The private sector’s appetite for loans has also remained weak despite better domestic economic conditions.

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

The report gave no deposit breakdown for October but it showed a sharp rise in private sector and individual deposits in September.

Individual deposits jumped by around Dh20 billion in the first nine months to reach Dh279 billion at the end of September while deposits by private institutions swelled by nearly Dhsix billion to Dh378 billion.

The report also showed a large increase in non-resident deposits, which surged by nearly Dh18 billion to Dh106.6 billion at the end of September.

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