Banks woo depositors with higher rates

Banks are once again luring depositors with higher rates and innovative schemes which, according to analysts, could trigger a rate war in the market.

With the appetite for corporate risks being down, banks are focusing more on retail banking by making credit cards and personal loans offering much more attractive. "But this time, the banks are very selective and are chasing only customers with proven track record to dump their money on," said an analyst.

While requests from new customers are being cold-shouldered, the existing good customers are getting repeated calls from multiple banks. The interest income from credit cards and personal loans are so high that the banks can afford to pay high rates on deposits as well.

The Abu Dhabi-based Union National Bank (UNB) recently announced the 'Accelerating Rate Deposit – Series 5 Scheme', which pays higher returns up to 5.75 per cent on savings. The minimum deposit prescribed for this scheme is Dh50,000.

Mashreqbank, the Dubai-based private sector local bank, has informed its customers through SMS that deposits placed with the bank for 400 days will attract an interest of up to five per cent. Emirates NBD, the largest bank in the country by assets, announced a new scheme called 'Monthly Interest Payout Fixed Deposit – an innovative fixed-deposit scheme, which enables customers to sign up for a fixed deposit and obtain interest payouts on a monthly basis.

The scheme which requires a minimum deposit amount of Dh10,000 or its equivalent is available in various currencies, including the UAE dirham, the US dollar, the British pound and the euro. "The new initiative addresses the cash-flow problem normally associated with term deposits, providing increased flexibility and convenience to clients," said Jamal Bin Ghalaita, Group Deputy CEO, Emirates NBD.

Banks are running high lending-deposits ratio which is higher than 1:1, and unless this is brought down to realistic levels, the banks would certainly find their going forward difficult, according to banking analysts.

In April while total assets fell by about Dh10 billion to Dh1.52 trillion, deposits have improved marginally from Dh967bn to Dh972bn. Deposits are still lower than that in November last when they totalled Dh1.002trn.

According to experts in the industry, banks need to do something to strengthen their asset books, which have remained somewhat flat for about a year now. "And this could even affect the profitability in the quarters to come.

"This is the reason why the banks now prefer to focus on the high-return areas such as credit card and personal loans by encouraging the 'existing good clients' to spend more through their innovative schemes.

"It is always better to coax the proven customers to spend more by offering them new schemes and increasing their limits than run the risk of enrolling new customers," retail head of a bank said.

According to sources, the relatively new brands such as Najm are increasing limits for card holders even in the absence of a request from them. And most leading brands in the credit card have come out with cash-back programmes.

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