Dubai: Government and public sector deposits in the UAE have been declining while borrowings are on the rise, reflecting a slowdown in economic growth, an economist has said.
According to the latest data compiled by the National Bank of Abu Dhabi (NBAD), outstanding loans in UAE, which include all the funds borrowed by private individuals, reached $370 billion in July 2015, recording a 10 per cent rise year-on-year.
The amount of government deposits dropped by 6.2 per cent year-on-year, while some banks are seeing customer deposits falling by 3 per cent. However, a key measure of banks’ liquidity which is otherwise known as loan-to-deposit (LTD) ratio, is growing, reaching 95 per cent in July this year, compared to 87 per cent in June 2014.
Overall, monetary aggregates are slowing down, with the growth of M3 - which represents the amount of money in the economy including bank deposits and currency in circulation - reaching only 1 per cent year-on-year in July 2015, paling in comparison to the 13.44 per cent growth recorded in July 2014.
According to Alp Eke, senior economist at NBAD, all these key figures indicate that economic activity in the country is not as strong as it used to be. Liquidity at banks, however, is not yet a cause for concern.
"Government and public sector deposits are declining. Loan to deposit ratio is increasing. Monetary aggregates are slowing down, indicating a slowdown in economic activity," Eke told Gulf News.
Quoting the latest Central Bank data, a report by NBAD noted that government and public sector deposits declined to Dh346 billion in July 2015, down by 11 per cent year-on-year. Government deposits dropped by 16 per cent to Dh163.2 billion.
In the second quarter of the year, NBAD deposits dropped Dh230 billion, or a 3.1 per cent year-on-year decline.
Considering the decline in oil prices, Eke said the country’s gross domestic product (GDP) will post an annual growth of 3 per cent to 3.4 per cent in 2015 and “drop to around $370 billion to $380 billion in nominal terms.”
“The oil sector is expected to remain stagnant or possibly grow marginally by 1 per cent year-on-year, while non-oil sector is expected to grow by approximately 4.5 per cent year-on-year. Real estate and transport/communication sectors will be the main drivers of growth.”
Eke, however, clarified that while the LTD ratio at UAE banks is rising, liquidity levels are still within “safe territory”.
“The fact that it is increasing is not a good sign, but we are still in safe territory and a possible bank run is highly unlikely. The LTD ratio was at around 87 per cent in June 2014 and has been increasing ever since.”
