Foreign holdings controlled by UAE banks leaped by nearly Dh23 billion in the first two months of 2011 after dipping by nearly Dh10bn in the previous month, according to official figures.
The bulk of the increase in the foreign assets was in money at call and short notice, which swelled by around Dh6bn, and in loans and advances extended by UAE banks to clients abroad, the central bank figures showed.
The banks’ foreign liabilities also gained around Dh10bn in the first two months after deposits of banks, mainly time deposits, grew by nearly Dh6bn. Funds due headquarters and branches also rose by Dh4bn.
From around Dh233.5bn at the end of 2010, the total foreign assets controlled by the UAE’s 23 national banks and 28 foreign units surged to nearly Dh256.3bn at the end of February, the central bank report showed.
The surge followed a decline of nearly Dh10bn in December mainly because of a sharp fall in money at call and short notice.
Money at call and short notice, which involve a loan that is repayable on demand within 14 days of service a notice, jumped from around Dh3.5bn to nearly Dh9.6bn in the same period.
Deposits with foreign banks grew from about Dh76.3bn to Dh79.3bn and almost all the increase was in time deposits.
Loans and advances to banks and other clients abroad jumped to nearly Dh72.3bn from Dh62.8bn in the same period.
The report showed growth in the bank’s foreign liabilities was slower as they rose by around Dh10 billion from Dh271.6bn to Dh281.8bn.
But the increase maintained the UAE banks’ status as debtor to the global financial system, with their debt position standing at around Dh25bn at the end of February compared with Dh38bn at the end of 2010.
More than half the increase in the foreign liabilities was in deposits of banks, which grew from Dh51.5bn at the end of 2010 to nearly Dh57.3bn at the end of February. Time deposits swelled to around Dh44.8bn from Dh39.9bn while demand deposits edged up to Dh12.5bn from Dh11.6bn.
In a recent report, a key Western financial institution attributed the surge in deposits with UAE banks to an increase in fund inflow due to the political turbulence sweeping the Middle East and North Africa.
“The current upheaval in the region may have benefited the banking system in the UAE because of some diversion of capital from troubled countries,” said the Washington-based Institute for International Finance (IIF).
Total deposits (including resident, nonresident, and government) have risen significantly in recent months, up by 14.3 per cent in the year to March 2011.
More than half of the increase was in time and savings deposits in local and foreign currencies. In our view, this increase in longer-term deposits reflects improved confidence in the UAE economy following Dubai World’s (DW) successful debt restructuring and the subsequent bond issues by the Government of Dubai and a number of GREs, IIF said.
“We expect credit growth to improve gradually in 2011 and 2012, supported by strong growth in deposits, lower interest rates in real terms, improvement in the liquidity of banks, and a pickup in domestic demand. We therefore expect the 12-month credit growth to accelerate from 2.5 per cent in March 2011 to about six per cent by the end of 2011 and eight per cent at the end of 2012.”
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