Government pumps Dh18bn into banks

The UAE Government pumped nearly Dh18 billion into the banking sector in September to mark the biggest monthly increase in its deposits with banks over the past two years, official figures showed yesterday.

The increase more than offset a decline in the private sector's deposits with the country's 24 national banks and 28 foreign units following a surge in such deposits in previous months, showed figures by the Central Bank.

From around Dh192.4 billion at the end of August, government deposits with banks surged to nearly Dh200.2bn at the end of September, one of their highest levels, the Central Bank said in its September bulletin.

Government deposits with banks jumped by about Dh84bn during 2008 on a monthly average of nearly Dh7bn. They recorded steady growth to reach Dh198.2bn at the end of December 2008 before they started to retreat in the following months apparently because of a sharp decline in oil prices following the eruption of the global fiscal crisis.

They dipped to around Dh194.1bn at the end of the first half of 2009 and continued their fall to reach Dh189.1bn at the end of July and Dh181.4bn at the end of August before sharply rebounding in September.

Oil prices

Oil prices leaped by more than 50 per cent in September over their January level of about $40 and remained as high as $70 a barrel in the following months.

The price surge in the second half of 2009 boosted the UAE's income to about $52bn after they were earlier forecast at nearly $40bn. But they remained far below their peak of about $87 billion in 2008, when crude prices hit a record average of $95 and the UAE was pumping near capacity.

The rise in government deposits with banks at the end of September means that it has pumped nearly Dh86bn into the banking sector since the end of 2007. Most of the funds were pumped after September 2008, when the global crisis erupted and reversed years of excess liquidity in the banking sector.

The surge in government deposits more than offset a decline of around Dh5bn in private deposits with banks. From nearly Dh363.4bn at the end of August, private sector deposits fell to Dh358bn at end-September.

Individual deposits climbed to about Dh261.7bn from Dh258.9bn while public sector deposits dipped to Dh58.8bn from Dh62.7bn.

Resident deposits

The rise in government funds boosted the resident deposits with the UAE banks from around Dh879.5bn at the end of August to Dh890.8bn at the end September. Total resident and non-resident deposits swelled from around Dh963.5bn to nearly Dh977.2bn in the same period. "I think government deposits with banks normally rise when there is an increase in its oil export receipts," said Humam Al Shamma, financial analyst at the Abu Dhabi-based Al Fajr Securities, a key UAE financial and brokerage firm.

"The government injected massive funds into the sector in 2008, mainly in the final months of the year despite the sharp fall in oil prices after the crisis…but as you know, 2008 was the best year for the UAE in terms of oil revenues."

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