UAE banks' deposits with Central Bank high

UAE banks are keeping their deposits with the Central Bank at one of their highest levels as they comply with statutory reserve rules and seek to offset a sharp slowdown in domestic credit, according to official data.

The country’s 23 national banks and 28 foreign units boosted deposits with the Central Bank by around Dh38 billion through 2009 and maintained that high level during the first nine months of 2010, the Central Bank figures showed.

The deposits had slumped to around Dh99 billion at the end of 2008 before they leaped to nearly Dh137 billion at the end of 2009. They slightly fluctuated through 2010 but remained as high as Dh135.5 billion at the end of September.

Most of the increase was in their investment in the Central Bank’s certificates of deposits (CDs), which surged from around Dh47.1 billion at the end of 2008 to nearly Dh71.4 billion at the end of 2009 and Dh73 billion at the end of September 2010, one of their highest levels, the Central Bank said in its monthly bulletin.

Analysts said the large growth in deposits with the central banks was due to the fact that they maintain the level of statutory deposits while there was a surge in demand for CDs during 2009 and this year because of waning domestic credit.

“Banks are trying to offset the credit slowdown to make profits by investing in the central bank and in banks abroad,” an Abu Dhabi-based financial analyst said.

“They are already suffering from slow performance because of lower lending activity and high loan loss provisions.”

Central Bank figures showed resident loans by the country’s 53 banks slumped to around Dh782 billion at the end of September from nearly Dh788 billion at the end of 2009 and all the decline was in credit to the private sector.

From around Dh607 billion at the end of 2009, total credit to the private sector dipped to nearly Dh588 billion at the end of September.

But loans to the government swelled to nearly Dh99.5 billion from Dh91.8 billion as the risk-averse banks tend to prefer the less risky public sector in their lending activity in the aftermath of the 2008 global fiscal crisis and regional debt default problems. The slowdown this year and in 2009 is in sharp contrast with credit during the boom years of 2007-2008 when it jumped by at least 35 per cent.

Besides investing in central bank CDs, banks are also turning abroad to make up for shrinking market share at home, with their foreign assets expanding from Dh208.1 billion at the end of 2009 to Dh228.2 billion at the end of September.

The increase in their deposits with the central bank and their foreign assets followed a sharp rise in deposits with the UAE banks as they climbed by around Dh20 billion in September and leaped by Dh40 billion at the end of October, when they hit an all time high of about Dh1,053 billion.

Low credit has allied with high bad debt provisions to stifle banks’ net earnings, which slumped by nearly 9.6 per cent in the first nine months of 2010.

From around Dh15.5 billion in the first nine months of 2009, the combined net profits of 17 listed banks shrank to nearly Dh15 billion in the first nine months of the year, according to their balance sheets.

“Many banks recorded growth in their net profits but some suffered a decline…I think the performance of the banks so far this year was generally good but earnings were stifled by heavy provisions,” said Ziad Dabbas, a financial adviser at the government-controlled National Bank of Abu Dhabi.

The figures showed the largest profit fall was recorded by the government-controlled Abu Dhabi Commercial Bank (ADCB), which had reeled under losses early this year because of its heavy exposure to regional defaulters.

The Bank reported a sharp rebound in its performance in the third quarter and this allowed it to offset earlier losses and record profits in the first nine months of 2010. But they were far lower than in the first nine months of 2009 as they collapsed to only about Dhnine million from Dh683 million.

Banks already suffered from lower net profits in 2009, when they dipped by nearly 20 per cent because of the surge in provisions, which soared by around Dhseven billion to reach a record high of Dh39.6 billion at the end of September.

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