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04 December 2023

UAE banks' loan-deposit gap stands at $10 billion

To narrow in coming period. Several banks exceed prescribed LTD ratio. (EB FILE)

By Piyush Pandey

Most of the UAE banks continue to maintain a loan-to-deposit (LTD) ratio higher than prescribed by the UAE Central Bank and analysts expect this gap, which is estimated at $10 billion (Dh36.7bn), will narrow in the coming period.

In spite of restricted lending that helped the ratio to improve since the last quarter of 2008, analysis of banks' data by Emirates Business showed that several banks far exceeded the recommended level.

In case of Abu Dhabi Commercial Bank, the loan-to-deposit ratio for 2009 was as high as 140 per cent whereas it was 118 per cent in case of Emirates NBD.

The latest Central bank data showed that the average ratio for the UAE banking sector stood at 103.5 per cent at the end of December. Individually, banks have been trying since late 2008 to narrow the gap between loans and deposits to maintain a balance. Though Abu Dhabi Commercial Bank achieved a higher deposit growth rate of 11 per cent against seven per cent in loans and advances, but its ratio was still pretty high at 140 per cent.

The bank had deposits of Dh86.3bn against a loan of Dh120.843bn at end of 2009.

In 2008, the bank had deposits of Dh77.744bn (excluding deposits of Dh6.6bn converted to tier II capital in first quarter of 2009) against loans of Dh111.071bn.

Emirates NBD's loan-to-deposit ratio improved last year to 118 per cent from 129 per cent in the previous year, but still far from the banking regulator's prescribed limits. The bank's loans grew 2.7 per cent in 2009 to reach Dh214.6bn from Dh208.9bn in 2008, while its deposits grew by more than 11.5 per cent to reach Dh181.2bn in 2009 from Dh162.3bn in the previous year.

First Gulf Bank increased its adjusted loan-to-deposit ratio to 105 per cent in 2009 from 107 per cent in 2008. Its total deposits stood at Dh86.4bn, after conversion of the Federal Government deposits of Dh4.5bn from customers deposits to tier II capital.

"Banks are limiting their exposure to the realty sector as rating agencies were not quite happy with their exposure to realty. So the loans have come down significantly and banks are able to improve on their loans to deposit ratio," said an equity analyst with a local brokerage firm specifically tracking Emirates NBD and ADCB.

According to analysts, in spite of the banks' efforts to bridge the gap between loans and deposits, the gap stands at a whopping $10bn at the end of 2009.

Nish Popat, head of fixed income, Middle East, ING Investment Management, said: "Over the past few years, loans by banks have increased and the [capital] debt market has suffered. However, in 2008, it's for the first time that the debt market has lent more money to corporate houses in the GCC than the banks. Banks will continue to lend to the corporate; this is the first step in the right direction."

When it comes to Islamic banks, many of them have managed to keep their loan-to-deposit ratios in lines with Central Bank's directives.

Dubai Islamic Bank (DIB) maintained a strong financing-to-deposit ratio of 78 per cent with customer deposits of Dh64.2bn as of December 31. Similarly, Abu Dhabi Islamic Bank's (ADIB) customer deposits grew by 36.7 per cent in 2009 after adjusting to Dh2.2bn of deposits that converted into tier II capital, resulting in customer financing to deposits ratio strengthening to 83.9 in 2009 against 91.2 in the previous year.


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