UAE banks boosted their investment in Central Bank certificates of deposits by nearly Dh12 billion in February to their highest level in nearly three years as they remain risk averse and the private sector is still not enthusiastic for credit, according to official data.
From around Dh90 billion at the end of January, the CDs held by the country's 23 national banks and 28 foreign units swelled to about Dh102.3 at the end of February, an increase of nearly 13 per cent, the Central Bank data showed.
The level at the end of February is the highest since the end of 2007, when CDs climbed to an all time high of more than Dh173 billion.
The increase indicated UAE banks have sufficient liquidity but are reluctant to reopen their lending purses to the private sector, analysts said.
The trend is a reversal of a policy that followed the eruption of the 2008 global fiscal crisis, when banks withdrew massive funds from the Central Bank to cushion a severe liquidity shortage.
From a record high of around Dh173.5 billion at the end of 2007, the banks’ investments in the CDs dived to only Dh47.1 billion at the end of 2008 before they started to recover through 2009 with the improvement in their liquidity. At the end of 2009, they rebounded to Dh71.4 billion.
The CD investments fluctuated through 2010 but remained far higher than at the end of 2008 before they peaked at a two-year high at the end of November.
“Banks now prefer to invest in the Central Bank’s CDs because of the risks surrounding their credit to the private sector," said Ziad Dabbas, financial analyst at the government-controlled National Bank of Abu Dhabi.
The surge in CD value also followed a decision by the Central Bank to issue Islamic CDs worth Dh3.5 billion.
In statements early this year, officials said the Central Bank had issued the Shariah-compliant CDs to Islamic and conventional banks within plans to create new investment tools and keep those banks away from the foreign markets.
The increase in CDs boosted the central bank's total assets by around 7.9 per cent to Dh247 billion at the end of February from Dh229 billion at the end of January, the figures showed.
The bulk of the increase was in the central bank's deposits in banks abroad as they grew by nearly 13.7 per cent to dh50.5 billion from Dh36.9 billion. Held to maturity investments also rise to Dh188.8 billion from Dh187 billion.