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29 March 2024

UAE bank reserves with Central Bank at all-time high

Published

UAE banks’ statutory reserves at the central bank climbed to their highest level of more than Dh63 billion in September, indicating they have sufficient liquidity despite dormant credit, according to official data.

The reserve requirements had steadily increased over the past years but edged down following the 2008 global financial distress after the central bank reduced the required level to make up for severe liquidity shortages.

From around Dh24.7 billion at the end of 2006, they climbed to Dh33.6 billion at the end of 2007 and Dh49.4 billion at the end of 2008 before slipping to Dh48.9 billion at the end of 2009, central bank figures showed.

They rebounded to nearly Dh54 billion at the end of 2010 and continued their climb to reach Dh83.5 billion at the end of September.

Under 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.

In recent comments, a central bank official said there was no plan to change the reserves requirement for banks on the grounds they have sufficient liquidity.

“The criteria adopted by the Central Bank in following up the domestic liquidity situation at the country’s banks show they enjoy a good liquidity position that does not require taking such a measure,” said Hadef Al Shamsi, executive director of the Central Bank’s Treasury Department Shamsi said the Central Bank takes into account two key indicators for liquidity in banks, including their investment in certificates of deposits (CDs) and the banks’ reluctance to use more funds made available by the Central Bank within its emergency facility after the 2008 crisis.

The figures showed banks’ investment in central bank’s CDs rocketed from only Dh27.9 billion at the end of 2008 to Dh67.1 billion at the end of 2009. They leaped to Dh94 billion at the end of 2010 and reached Dh119.2 billion at the end of May 2011 before falling back to Dh86.7 billion at the end of September.

Early this year, 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 in 2009.

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

Data showed banks’ domestic credit edged up by only around 3.5 per cent year-on-year in September to around Dh1,075 billion compared with more than 30 per cent during the boom years of 2007 and most of 2008.

Lending remained low despite a sharp rise in deposits, which shot up to Dh1,067 billion at the end of last September from Dh1,014 billion in September 2010.

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Economic upturn boosts Saudi consumer spending (Letters of credit surge over 27% in Q3 mostly from other GCC members)

 

By staff

 

A pick up in its economy boosted Saudi Arabia’s letters of credit (LCs) by more than 27%  in the third quarter of 2011, indicating a surge in consumer spending, the Gulf Kingdom’s largest bank said on Tuesday.

National Commercial Bank (NCB) said imports of goods, reflected in opened LCs, are key indicator for consumer spending in Saudi Arabia, the largest Arab economy and the world’s dominant oil exporter.

It cited government data showing opened LCs reached nearly SR43.7 billion in the third quarter of 2011 an impressive 27.8% over the same quarter last year.

The increase was mainly attributed to “Appliances and Other Goods” category which gained by 58.7% and 55.1% on an annual basis.

Additionally, building materials and machinery have picked strongly by 43.4% and 37.2% over the same period last year.

Both sectors mark their eighth consecutive quarterly increase as the construction sector in the Kingdom booms, NCB said in its weekly bulletin.

The report showed that since the beginning of 2011, contract awards for the construction sector in Saudi Arabia have reached SR179.5 bn, a staggering 125% increase over the same period last year.

On the geographical front, the GCC region has been the favored region for purchases as settled LCs reached SR27.8 bn so far this year, representing 23.7% of total settled LCs.  Settled LCs for North America and Western Europe goods have increased by 36.8% and 0.8%, respectively.

Overcoming supply chain disruptions, Japan settled LCs grew by 29.6% Y/Y during the past quarter, according to NCB.

“The robust economy had demonstrated many opportunities for local and international investors and it will continue to do so with huge surpluses for 2011.”