UAE banks boost loans by Dh6 billion in June

UAE banks boosted their credit by nearly Dh6 billion in June as they were tempted by government plans to guarantee bonds within overall measures aimed at boosting investors' confidence, official figures showed yesterday. But deposits plunged by nearly Dh11bn after a steady growth in the previous few months apparently because of a decline in inter-bank rates due to improved domestic liquidity, showed the figures by the Central Bank. Higher liquidity was reflected in a Dh5bn increase in investment by the UAE's 24 national banks and 28 foreign units in the Central Bank's Certificates of Deposits (CDs), which jumped to their highest level since September. The figures also showed the UAE banks are pushing ahead with boosting their non-performing loan provisions following the eruption of the global financial turbulence and the default problem by the Saudi Arabia's Saad and Algosaibi groups. From about Dh1,003.6bn at the end of May, the total loans and advances extended by the country's 52 banks climbed to an all-time high of nearly Dh1,009bn at the end of June, according to Central Bank figures. In contrast, deposits with those banks dived from about Dh972.4m to about Dh961.7m in the same period. The decline widened the loan-to-deposit ratio to 1.04 from 1.03 despite Central Bank's instruction to banks to keep that ratio within reasonable limits. "The decline in deposits clearly reflects a fall in interest rates following a drop in inter-bank rates. This has apparently prompted key investors to switch to other channels, mainly the stock market which has started to improve," said Humam Al Shamma, financial advisor at the Abu Dhabi-based Al Fajr Securities. "As for loans, I think the increase is because banks are investing more in Central Bank CDs and at the same time encouraged by plans by the Federal Government to guarantee bonds issued by local banks and companies. It appears that the banks are acting in advance of such plans to expand their lending activities." The figures showed CDs held by UAE banks swelled from about Dh53.1bn at the end of May to Dh58.3bn at the end of June, their highest value since September, when they stood at about Dh64.1bn. Provision for non-performing loans grew to one of their highest levels of about Dh23.9bn at the end of June from Dh22.9bn at the end of May, an increase of Dh1bn in one month. Experts said banks had been locked in a drive to boost those NPL provisions since the eruption of the global crisis. The Central Bank report showed the increase in credit and CD investment by banks was at the expense of personal loans, which declined to about Dh205.2bn at the end of June from Dh207.6bn at the end of May after leaping by about Dh6bn in the previous month. The banks' combined shareholders equity, covering capital and reserves, gained about Dh9bn to hit a record high of Dh212.4bn at the end of June. Total assets slipped by Dh100m to Dh1,498.3bn from Dh1,498.4bn in the same period. But they remained the largest assets in the Arab World. The figures showed the banks' letter of credits slumped to Dh105.5bn from Dh111.4bn and investments to Dh115.3bn from Dh117.3bn. Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here .