UAE bank provisions rise 3.9%
Provisions made by UAE banks rose 3.89 per cent month-on-month in October even as bank loans declined marginally, data from the country’s central bank shows.
Total provisions in the region’s second largest economy increased to Dh54.1bn at the end of October, up from Dh52bn in September, data from UAE Central bank shows.
Specific provisions for bad loans were up 4.76 per cent, from Dh37.8bn in September to Dh39.6bn in October, while general provisions were up 2.1 per cent, from Dh14.2b to Dh14.5b during the same period. Loans and advances (net of provisions) by UAE banks, on the other hand, declined marginally from Dh1,038.4bn in September to Dh1037.7bn in October, data shows.
A senior economist said yesterday that the UAE’s banking system remained on sound footing, with a high level of capital adequacy ratio, which according to Central Bank data stood at 20.4 per cent of total loans in September 2010.
“If you look at the non-performing loans [NPLs], latest numbers show that NPLs are at 4.3 per cent of total loans. This is lower than what it was in 2005-2006, when they [NPLs] were running at 8.3 and 6.3 per cent,” Dr Nasser Al Saidi, Chief Economist at the Dubai International Financial Centre, told a media gathering yesterday.
“The greater liquidity of the banking sector – its good capitalisation – will allow it to start financing the recovery,” he emphasised. “We’ll all be seeing an increase in credit growth to the corporate sector,” Dr Saidi reckoned.
The increased level of month-on-month provisioning further shows that the country’s banks continue to take balance-sheet measures against bad loans.
Central Bank data also shows that bank deposits in the UAE have increased by 7.2 per cent in the first 10 months of this year, from Dh982.6bn at the end of 2009 to Dh1,053.8bn at the end of October 2010. Deposits rose almost 4 per cent month-on-month from Dh1,013.3bn in September 2010.
In a bid to improve transparency in the banking sector, the country’s Central Bank recently revised the basis of classification of loans and their provisioning requirements, mandating lenders to book bad loan provisions on a quarterly basis instead of waiting until the end of the year to cover bad loans.