Loans and deposits of UAE banking sector pick up pace
Loan-to-deposit ratio improves amid solid system-wide liquidity
Dubai: Loans and deposits across the UAE’s banking system reported solid growth in the month of August, according to an analysis of data from the UAE Central Bank by the Economics Team at Abu Dhabi Commercial Bank (ADCB).
August data showed gross credit growth expanded by 0.6 per cent month on month (Dh9.9 billion) in August — one of the strongest monthly rises in 2018 so far. This resulted in the year on year growth rate accelerating to 3.4 per cent, up from 3.2 per cent in July.
“The private sector was largely behind the pick-up in credit growth in August in absolute terms (both corporate and retail), though loans to the government sector also increased. We believe that corporate and government credit demand has likely been supported in 2018 by stronger investment activity and some refinancing of existing debt,” said Monica Malik, chief economist of ADCB.
August saw a month-on-month increase of 0.6 per cent in retail credit after the weak growth trend seen since the beginning of the year.
“We see some likely support from seasonal factors with Eid having fallen in the month and the associated holiday being longer than expected. We believe that it is too soon to factor in a meaningful improvement in the personal consumption outlook given the ongoing challenges, including those related to the labour market, though the impact of the introduction of VAT [value-added tax] is likely to fade,” said Malik.
Credit demand form government related entities (GREs) posted some limited growth in the month but remained weak overall. Loans to the GRE sector fell 5 per cent year on year. Data showed system-wide deposits increased by 0.5 per cent month-on month (Dh8 billion) in August, pushing the annual rate up to 7.6 per cent year-on-year.
“Higher oil revenue has likely been a key factor supporting the rise in government deposits. In parallel, net government deposits in the banking sector saw a notable rise in June despite the monthly increase in gross credit to the sector,” said Thirumalai Nagesh, an economist at ADCB.
The report said a jump in government deposits in August helped compensate for a 2.1 per cent month on month (Dh1.9 billion) fall in private sector deposits. Non-resident deposits were up 2.4 per cent month-on-month and 10.2 per cent year on year in August.
The loan-to-deposit (L-to-D) ratio rose moderately to 95.9 per cent in August from 95.8 per cent in July as credit growth outstripped deposit growth, but still reflecting comfortable liquidity conditions.
“The ample liquidity and rise in government deposits is also reflected in the jump in banks’ holdings of certificate of deposits (CDs) in August, up 9.7 per cent month-on-month and 16.3 per cent year-on-year. We see the Central Bank of the UAE raising its benchmark repo rate by 25 bps to 2.5 per cent this week, in line with the Fed,” said Nagesh.