Dubai: The UAE banking sector liquidity conditions in the first quarter of 2017 has eased further from year end 2016 and banks have substantially better liquidity position at the close of the first quarter of 2017 according to the latest data from the Central Bank of UAE.
March data shows the gross loan-to-deposit rate fell to 99.7 per cent in March, down from 100.3 per cent in the previous month. In the first quarter of 2017, deposit growth of 2.5 per cent outstripped credit growth of 1.5 per cent. This is the lowest L-to-D ratio since May 2015. Analysts said the improved liquidity conditions are partly behind the limited rise in EIBOR [Emirates Interbank Offered Rates], especially following the 25 bps rise in the US interest rates and the subsequent UAE repo rate in March.
The overall improvement in the banking sector liquidity was supported by improvement in deposits which rose by 1.3 per cent month on month Dh20.6 billion in March after a solid increase in February of a 1.2 per cent or Dh19.1 billion. However, on a yearly basis, the deposit growth rate decelerated to 6.6 per cent year on year in March from 7.5 per cent in February.
Deposit growth was largely driven by domestic deposits in March, rising by 1.7 per cent month on month by Dh23.3 billion, with both GREs and private sector segments seeing strong increases. The GRE deposits were up by 9 per cent in March compared to February but the government deposits fell by 2.6 per cent in the same period but remained substantially higher than their recent low in October last year. Government deposits were up 20.8 per cent in March compared to October levels, and were 24.8 per cent higher year on year.
Overall non-resident deposits in the banking sector fell by 1.4 per cent month on month by Dh2.7 billion in March, their third consecutive monthly decline. “We see this as a result of banks shedding their more expensive non-resident deposits given the higher domestic ones. Non-resident deposits have fallen by 5 per cent year to date and now account for 11.8 per cent of total banking sector deposits, down from 12.7 per cent in December 2016,” said Monica Malik, chief economist of Abu Dhabi Commercial Bank (ADCB).
In March, gross credit growth continued to strengthen on a monthly basis, rising from 0.5 per cent in February to 0.7 per cent month on month, the fastest pace since September 2016. However the annual loan growth decelerated further to 5.3 per cent year on year, reflecting the soft pace of credit expansion in the fourth quarter of 2016 and January 2017.
The first quarter 2017 average monthly credit growth of 0.5 per cent was below the 2017 first quarter level of 0.7 per cent despite the pickup in credit growth in February and March. The recent strengthening in monthly credit growth was largely driven by the GRE segment, which rose 3.1 per cent in March compared to the previous month with government borrowing from the banking sector also accelerating 2.3 per cent.
