UAE banks sharply boost investment abroad

Surge comes amidst slackening domestic credit and lower provisions

UAE banks boosted their deposits with banks abroad by nearly Dh30 billion in the first eight months of 2012 apparently to offset slackening domestic credit and make use of excess funds resulting from lower provisions.

From around Dh83.8 billion at the end of 2011, the deposits of the UAE’s 51 banks with banks abroad soared to their highest level of nearly Dh114.9 billion at the end of August, according to the Central Bank’s latest monthly bulletin.

All the increase was in time deposits which swelled to around Dh105.4 billion from Dh69.2 billion. Demand deposits fell from Dh14.6 billion to Dh9.4 billion.

The surge in the deposits boosted the banks’ total foreign assets to one of their highest levels of Dh285.5 billion at the end of August from Dh248.8 billion at the end of 2011.

Banks’ liabilities also grew to around Dh311.2 billion from Dh289.8 billion but their net foreign assets narrowed to nearly Dh25.7 billion from Dh41 billion.

The report showed credit by UAE banks to the private sector remained stagnant despite an upswing in the domestic economy because of high oil prices, an increase in public spending and expansion in most non-hydrocarbon sectors.

Loans and advances to the private sector shrank from around Dh573 billion at the end of 2011 to Dh560 billion at the end of August 2012.
But credit to the government swelled to nearly Dh116 billion from
Dh102 billion. This boosted the banks’ overall domestic credit to
Dh808 billion from Dh788 billion, an increase of only about 2.5 per cent against more than 30 per cent during the boom years of 2006-2008.

Banks in the UAE and other Gulf oil heavyweights have sharply cut credit since the eruption of the 2008 global fiscal distress but some of them have started to ease curbs after building up a sufficient provision base.

Higher investment abroad allied with lower provisions and credit to the public sector to allow UAE banks to perform better in the first nine months of 2012.

The balance sheets of 17 national banks listed on the stock market in the second largest Arab economy showed their net profits swelled to
Dh17.97 billion in the first nine months of this year from Dh17.53 billion in the first nine months of 2011.

Only three banks reported lower profits while most of the rest recorded modest increases in their income. The highest income growth was recorded by the Commercial International Bank, whose net earnings more than tripled during that period.

Government-controlled Emirates NBD, one of the largest banks in the Middle East, saw its profits fall to around Dh1,628 million in the first nine months of 2012 from Dh2,331 million in the first nine months of 2011. But it maintained its position as having the largest assets in the UAE standing at Dh271 billion at the end of September, nearly a fifth of the total assets of the listed banks of around
Dh1,336 billion.

Abu Dhabi Commercial Bank (ADCB), another major financial unit controlled by the Abu Dhabi government, reported a drop in net profits to Dh2,131 million from Dh2.531 million in the same period after suffering from losses in previous years.

The balance sheets showed provisions allocated by the 17 banks for bad loans declined by around 10 per cent to Dh9.85 billion in the first nine months of 2012 from Dh11 billion in the same period of 2011.

Image via Shutterstock


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