Abu Dhabi: UAE banks are in need of further liquidity injections by the Central Bank or easing of pressure by the regulator to reduce their loans-to-deposits ratios in order to spur lending, a senior banker said on Tuesday.
Tirad Mahmoud, chief executive officer of Abu Dhabi Islamic Bank (ADIB), the country's second-largest Sharia-compliant lender, said banks have no option but to raise deposit rates to attract customers which has led to higher lending rates and a consequent drop in lending activity.
"The Central Bank has guaranteed all deposits," Mahmoud told Gulf News. "So why do we pay 4 per cent [on deposits]: because we have to in order to meet the regulatory requirement."
Mahmoud is the second prominent banking executive this month to call on the Central Bank to release more funds into the system. In early February, Noor Islamic Bank CEO Hussain Al Qemzi said banks need an additional Dh20 billion to Dh25 billion to resume normal lending.
Loan growth in the UAE slumped in 2009 to 2.4 per cent despite Dh70 billion in injections by the Central Bank to counter the effects of the global financial downturn, including the drying up of liquidity. Lending had grown by more than 30 per cent annually in the previous four years, according to Central Bank data.
Risk assets declared
ADIB on Sunday reported its loans, or "risk assets" in Islamic banking terminology, grew by more than 18 per cent in 2009, while deposits grew by 29 per cent. The bank maintained the lowest loans-to-deposits ratio among large UAE banks at 88 per cent, compared with Emirates NBD at 118 per cent and Abu Dhabi Commercial Bank at 135 per cent.
ADIB's shares dropped 6.6 per cent to Dh2.83 on Monday, the first day of trading after its earnings release. The bank reported a fourth-quarter loss of Dh623 million because of increased provisioning against non-performing loans.
Separately, Mahmoud said the biggest challenge sector-wide in 2010 will be for banks to manage their real estate exposure.
"I don't think the real estate sector has seen the bottom yet," Mahmoud said. "There are many projects [nearing completion]. When these buildings are complete and delivered, and I think that will happen in 2010, we will see more downward pressure on rentals and prices. When that happens, customers will suffer. If customers suffer, financial institutions will suffer."
As of press time, ADIB's had not disclosed its exposure to the sector, but Mahmoud said about 80 per cent of its real estate lending is in Abu Dhabi.
