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21 February 2024

Marginal decline in bank deposits in January

Sanjay Uppal (SUPPLIED)

By Shveta Pathak

Efforts by banks to improve their deposit base will take some time to show results, banking analysts said in response to the latest UAE Central Bank data showing a 1.8 per cent fall in deposits in January this year compared to December 2008.

According to analysts, a multipronged approach would bring the banking sector back on track.

The UAE monthly banking indicators, posted on the Central Bank website, show that total bank deposits were Dh905.7 billion at the end of January compared to Dh922.5bn at the end of December 2008, a decline of 1.8 per cent.

Loans and advances in the same period rose to Dh1,022.1bn from Dh1,018.5bn, resulting to an increased advances to deposits ratio of 112 from 110.

Banking analysts, however, said there was not much reason to worry as the rise was "marginal" and deposits were closer to November levels. Banks increased the provisions for non-performing loans, or NPLs, to Dh26.3bn in January from Dh24.9bn in December.

"Tight liquidity situation in the current environment is a global economic phenomenon. In the UAE, the advances-to-deposits ratio is not as high compared to other parts of the world. There are some initiatives being taken by the Central Bank and also by the government. I think the measures in the next few months and quarters should help ease the liquidity," Sanjay Uppal, Chief Financial Officer of Emirates NBD, told Emirates Business.

The A/D ratio, which was higher than 111 in November, went down to 110 in December and has increased to 112 in January, the Central Bank data showed.

The high A/D ratio has been bothering banks resulting in increased efforts towards wooing deposits in the past few months. Analysts said the measures by the banks, along with those by the Central Bank and the government, would take some time to show results.

"They are moving in the right direction by making attempts to enhance their deposits, attracting more customers and retaining the existing ones. The government and the Central Bank too have been working in this direction. All these efforts take time to show results. But the banks will have to work on obtaining higher returns as they are offering high interest rates to attract deposits," said Wadah Al Taha, a senior analyst.

Al Taha said further injection of liquidity into the banks and measures like reducing the cash reserve ratio can speed up the pace of improvement of the banking sector.

"The current approach is a correct but at the same time there's a challenge and they have to work on various channels. The banks have to create a return that is higher than what they are offering on deposits. The health of the banking sector cannot be improved by a single measure."

Reducing the CRR, pumping in liquidity "at the right time" along with considering the costs of the same, would help reach comfortable levels of liquidity in the coming few months, Al Taha said.

A rise or fall in deposits in a short span in an economic situation like the existing one may not be a very accurate indicator of banking health, Uppal said.

"The unfortunate part of the current crisis is the unpredictability of the assets. It is tough to pinpoint any movement in the market on the basis of a single factor," he said.