Banks bring back Dh179bn to UAE

UAE banks repatriated more than Dh179 billion from their overseas funds to the UAE in 2007 to benefit from a domestic business upsurge, official figures showed.

The returning funds were nearly four times those repatriated in 2006 and constituted a turnaround in the banks' policy in previous years, when they played a key role in siphoning out funds and keeping up pressure on the UAE balance of payments.

Central Bank figures showed the country's 24 national banks and 28 foreign units brought a record Dh179.4bn back into the UAE last year compared to Dh48.2bn in 2006 and an outflow of Dh12.4bn in 2005 and Dh2.5bn in 2004.

Bankers said the bulk of the repatriated funds last year were reinvested in UAE equities, Central Bank certificates of deposits, credits to the private sector and deposits in dirham in the local banking sector in anticipation of a currency appreciation.

"In previous years, the banks had concentrated on investing their excess liquidity abroad because the market here was relatively small and investment opportunities were not enough," said an economist at an Abu Dhabi-based bank.

"The situation is completely different now… business is sharply growing and there are vast financing opportunities in the UAE. Another key factor was the large increase in the Central Bank's issuance of certificates of deposits last year."

The massive fund repatriation last year was reflected in a decline in the banks' foreign assets for the first time in many years to around Dh196.8bn at the end of 2007 from nearly Dh231.9bn at the end of 2006, according to the Central Bank.

Their deposits with the Central Bank, mainly investments in certificates of deposits, leaped to nearly Dh231.1bn from Dh58.4bn in the same period. Their domestic investments also surged to Dh53.2bn from Dh32.1bn.

The repatriation allowed the banks to sharply boost their lending operations to take advantage of an economic boom and an upswing in projects, mainly construction.

From Dh474.1bn at the end of 2006, the total credits extended by the UAE banks jumped to a record Dh647.4bn by the end of 2007. The private sector, which is gradually outsizing the public sector, received the lion's share of those credits, which jumped from Dh376.1bn at the end of 2006 to Dh512.3bn at the end of 2007.

The combined assets of the banking sector also swelled to Dh1.22 trillion at the end of 2007 from Dh859.5bn, an increase of around Dh360bn in one year.

The surge in credit activity, including the fast-growing personal loans and real estate mortgages, allowed the UAE banks to net record profits of Dh24.5bn in 2007.

Bankers said the sharp growth in first-half profits by most banks that have released latest results showed the banking sector is heading for another record year in 2008.