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29 March 2024

No plan to change statutory reserves

UAE Central Bank official said that local banks enjoy good liquidity position (FILE)

Published
By Staff

The UAE Central Bank has no plans to change its statutory reserves requirements for local banks on the grounds they have sufficient liquidity, the Arabic language daily Al Khaleej reported on Wednesday.

It said Hadef Al Shamsi, executive director of the Central Bank’s Treasury Department, was reacting to recent calls by experts for cutting the reserve requirement so banks will have enough funds to lend.

Under the current regulations, the UAE’s 23 national banks and 28 foreign units must keep at least 14 per cent of their current accounts, savings and call accounts and one per cent of their time deposits with the Central Bank.

“The criteria adopted by the Central Bank in following up the liquidity situation at banks show they enjoy a good liquidity position that does not require taking such a measure,” Shamsi was quoted as saying.

Shamsi said the Central Bank takes into account two key indicators for liquidity in banks, including their investment in certificates of deposits which have surged above Dh85 billion, and the banks’ reluctance to use more funds made available by the Central Bank within its emergency facility after the 2008 global fiscal crisis.

“Banks no longer use that facility which was introduced by the Central Bank to support their liquidity,” Shamsi said.

In September, Central Bank governor Sultan bin Nassir Al Suwaidi said the UAE’s 51 banks enjoy a strong financial position and can deal with any fresh crisis. But he added they have remained cautious in lending because of the repercussions of the crisis and regional default problems.

“I believe they will resume normal lending once economic conditions start to improve…for the present period, it seems that caution is the main feature of banks’ lending operations,” Suwaidi said.

Central Bank figures showed loans extended by UAE banks grew by only around 1.9 per cent in the first 10 months of 2010 to extend a credit slowdown through 2009, when growth stood at about 2.4 per cent. The level is a fraction of credit growth of more than 30 per cent during the peak pre-crisis boom period of 2007-2008. Besides the banks’ tight policy, the private sector’s appetite for credit has also remained weak because of uncertain economic conditions.

“Banks have enough liquidity following the recent large increase in deposits,” an Abu Dhabi-based analyst said. “But there is a poor appetite for loans by both the private sector and the banks…we expect this to change through 2011.”

The figures by the Central Bank showed deposits with banks leaped by a staggering Dh40 billion in just one month to peak at Dh1,053 billion at the end of October and upset the loan-to-deposit ratio for the first time in nearly two years.