UAE bank NBAD says government deposits drop by Dh48 billion

National Bank of Abu Dhabi  (NBAD), the United Arab Emirates' largest bank by assets, said government deposits dropped by Dh48 billion ($13 billion) in past 12 months after it reported a 3 per cent fall in third-quarter profit.

The bank's chief executive Alex Thursby said on Wednesday that the UAE banking system as a whole lost Dh56 billion in government deposits from September 2014 to September 2015.

"We do think tightening liquidity will eventually force banks to raise interest rates and will push NBAD to raise rates," Thursby said on a conference call with analysts.

"We will always trade off return for safety in the current uncertain outlook, even if it slows our growth profile," Thursby told reporters.

In July, NBAD had said it did not expect further big outflows of government deposits after these fell by Dh37 billion during the first half of 2015.

NBAD, seeking to diversify outside its home market, bought Royal Bank of Scotland's offshore loan book in India this month for Dh3 billion, Thursby said. NBAD plans to start operations in India next week.

NBAD made a net profit of Dh1.33 billion ($362 million) in the third quarter ended Sept.30, down from Dh1.37 billion in the same period last year, missing analysts forecasts.

Four analysts polled by Reuters had forecast an average net profit of Dh1.45 billion.

NBAD's deposits shrank to Dh235 billion in the first nine months this year from Dh265 billion in the corresponding period of 2014 due to an outflow of government deposits.

Despite higher interest income and lower impairments in third quarter, NBAD's profit fell due to lower non-interest income which fell to Dh763 million from Dh774 million in the prior-year period.

Loans grew 7 per cent in the first nine months of this year over the same period last year, but Thursby said he expected loan growth to slow down across all sectors in the UAE going forward.