Abu Dhabi: The UAE’s central bank governor said he was not worried about the liquidity situation in the country, describing it as “very good,” with banks holding abundant amounts of certificates of deposits with the central bank.
“Deposits have been improving. I think rates have been affected due to the pressure on deposits by the government in 2015. However, we see now the return of deposits from the government.
I also want to mention that non-resident deposits have been on the rise since 2014 when we started having pressure on oil prices, so all in all, the situation in terms of liquidity is good,” Mubarak Al Mansouri, governor of the Central Bank, told reporters.
He pointed, however, that banks are cautious given the situation, but continue to lend.
Bank liquidity has been tightening in the UAE on the back of lower oil prices, which fell from their highs of nearly $115 (Dh422.4 million) in mid-2014 to a low of under $30 in January 2016. They have seen some recovery since then, hitting $50 on June 2.
The drop resulted in weaker performance in most banks across the country, especially in terms of their liquidity, asset growth, asset quality and profitability.
Last month, in its ratings review, Moody’s assigned a negative outlook for many UAE banks, but it kept their ratings unchanged.
Asked about his outlook for the UAE’s banking sector, Al Mansouri said, “I think banks are coming out from a difficult period, especially in the beginning of this year. However, they are being more cautious in terms of their lending; they continue to lend but selectively. I think things will ease up given the increase in oil prices recently. We are seeing government deposits increasing recently.”
Al Mansouri also said there is a higher probability in an increase in interest rates from the US Federal Reserve, and that, given the dirham’s peg to the dollar, the UAE would follow suit if there is a hike in rates.
He reiterated that the UAE is not changing its stance on pegging its currency to the US dollar.
“I don’t see the pressure [on the dirham]. Maybe it’s in the forwards [market] and it’s very little,” the governor said.
He was speaking on Sunday on the sidelines of the meeting of the Permanent Bureau of Governors of Arab Central Banks and Monetary Agencies. Also attending the meeting were Tarek Amer, governor of Egypt’s Central Bank; Abdul Latif Al Jawahiri, Morocco’s Central Bank governor; and Abdul Rahman Al Humaidi, director-general of the Arab Monetary Fund.
The meeting discussed challenges facing the banking sector, the development credit data on small and medium enterprises, and updates on a plan to establish a system for clearing and settling pending payments between Arab countries.
