Islamic CDs surge Dh13bn in H1

Islamic certificates of deposits (CDs) issued by the UAE central bank in late 2010 soared by nearly Dh13 billion at the end of June as banks appear to investing heavily in such tools issued in the country for the first time.

Total CDs, including conventional and Islamic CDs, slipped by around 1.3 per cent in June after a steady rise in the previous months but remained at one of their highest levels, according to figures issued by the central bank.

From around Dh4.6 billion at the end of 2010, Shariah-compliant CDs issued by the central bank to Islamic and other banks swelled to a record high of nearly Dh17.6 billion at the end of June, an increase of Dh13 billion.

The central bank first issued around Dh1.6 billion Islamic CDs in November and the figures showed there was a rapid rise in their value in the following months.

Total CDs edged down by around 1.3 per cent to Dh117.9 billion at the end of  June from Dh119.4 billion at the end of May after a steady increase in the previous months. The value stood at nearly Dh94 billion at the end of 2010 and nearly Dh67 billion at the end of the first half of 2010.

The figures showed UAE banks are turning heavily to the central bank to invest excess liquidity and offset a sharp slowdown in their credit to the private sector which they now see as a high-risk field.

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 central bank’s 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 May.

Announcing Islamic CD plans, officials said the central bank had issued such instruments to Islamic and conventional banks within plans to create new investment tools and keep those banks away from the foreign markets.

 “These CDs are open to all banks operating in the UAE, including conventional and Islamic banks…as for Islamic banks, they will be able to improve management of their liquidity and I think these CDs constitute a major step towards the development of Islamic banking in the UAE,” said Hadef Al Shamsi, executive director of the central bank’s treasury department.

The central bank report showed deposits with UAE banks grew from around Dh1,123.5 billion at the end of May to Dh1,126 billion at the end of June.

Loans and advances swelled from about Dh1,048.7 billion to Dh1,056.4 billion while total assets edged up from Dh1,703.5 billion to Dh1,707 billion.

NPL provisions increased slightly from around Dh47.1 billion to Dh47.3 billion after a rapid growth over the past two years due to the global financial crisis and severe regional debt default problems.

The report showed personal loans picked up by nearly Dh2.4 billion to Dh248 billion at the end of June from Dh245 billion at the end of May after a slight rise in the previous month and a decline in March.

The banks’ combined capital rose by only Dh100 million to Dh268.9 billion while their capital adequacy leaped to one of its highest levels of 21 per cent, far above the international adequacy requirement.