Dubai: The UAE’s banking sector loans growth moderated in April after two months of accelerated growth, according to the latest numbers from the Central Bank of UAE.

Gross loans fell by a limited 0.1 per cent in April compared to March. On a yearly basis, credit growth remained steady at 5.3 per cent. The decline in overall loan growth last month is largely attributed to a 5.4 per cent decline in loans to government-related entities (GREs) which brought down the yearly expansion rate down to 3.1 per cent from 7.7 year-on-year in March.

“The data for the first four months of 2017 point to softer credit demand for GREs this year than in 2016, when they were the key driver of credit growth. We believe that two factors could possibly be behind the weaker demand: first, greater reliance on other borrowing sources, such as the debt market; and [second], ongoing adjustments by GREs to adapt to the weaker demand backdrop,” said Monica Malik, Chief Economist of Abu Dhabi Commercial Bank.

The GRE sector has become a net depositor in the banking system in April with the sharp monthly drop in credit to the sector. Thus, both the government and GRE sector were net depositors to the banking sector in April. Meanwhile, credit growth to the private sector accelerated in April, driven by the corporate sector. Retail loan growth continued the deceleration trend seen last year, reflecting labour market uncertainties.

The latest credit sentiment survey of the central bank showed that in the first quarter of 2017, there has been an improvement in credit demand across all segments; however, survey respondents reported a tightening in credit standards that occurred most with respect to collateral requirements and premiums charged on riskier Loans. For the June quarter, survey respondents expect credit standards would continue to tighten.

Central bank data showed last month, banking sector deposits rose by a moderate 0.2 per cent (Dh3.1 billion), compared to March which helped to push up the annual growth rate to 7.1 per cent from 6 per cent in March. The monthly rise was the weakest since January 2017 but continued to support the ongoing improvement in liquidity conditions. Once again, resident deposits were behind the increase, boosted by stronger government deposits (+3 per cent month-on-month) and, to a lesser degree, private sector deposits (+0.3 per cent).

GRE deposits fell by 0.8 per cent in April compared to March but are still up 13.1 per cent year to date. Higher GRE and government deposits have been a central feature in 2017 so far, likely supported by stronger oil revenue and an improvement in the fiscal position. Government deposits were up 7 per cent at the end of April.

A key factor behind the more moderate rise in total deposits in April was the greater decline in non-resident deposits to 2.5 per cent month on month (Dh4.7 billion). This marks the fourth consecutive monthly decline in non-resident deposits, reflecting banks’ greater ability to raise deposits domestically, which are often more competitively priced. Non-resident deposits have fallen by 7.4 per cent YTD and now account for 11.5 per cent of total banking sector deposits, down from 12.7 per cent in December 2016.

Loan-to-deposit (L-to-D) ratio in the banking system moderated further to 99.4 per cent in April, down from 99.7 per cent in March and 100.7 per cent in December 2016. Deposit growth largely outstripped credit growth in April, thereby improving liquidity and limiting the upward pressure in market interest rates.