Dubai: Aggregate monetary data for the first five months of the year from the UAE Central Bank showed a pick in both credit and deposit growth across the banking system.
According to an analysis of the central bank data by Abu Dhabi Commercial Bank’s Economics team, system-wide loans and deposits in the banking sector saw a solid monthly rise in May, both expanding by 0.7 per cent month on month.
Data showed the overall pace of credit growth has been moderately stronger year to date, averaging 0.5 per cent from 0.3 per cent in the corresponding period in 2017.
The month on month increase in credit in May resulted in the year on year growth rate accelerating to 2.5 per cent from 2.1 per cent in April. The rise in gross credit was largely driven by private sector corporate loans, which expanded by 1.6 per cent month on month (upD12.3 billion) in May.
Domestic credit growth so far this year has been driven largely by the private corporate (3.4 per cent) and government (3.5 per cent) segments. “We believe that this has likely been supported by a pickup in investment activity that has been evident since end-2017, alongside some refinancing of existing loans,” said Monica Malik, Chief Economist of ADCB.
Despite the pickup in private sector corporate loan offtake, data showed there are signs of deleveraging from GRE, which saw a 1.6 per cent month on month contraction in May and is down 2.6 per cent YTD.
Credit to the retail segment fell marginally (0.1 per cent) in May with factors such as the introduction of value added tax (VAT), higher interest rates and ongoing weakness in the labour market affecting loan demand.
Rising oil prices saw a significant rising in government deposits by 9.6 per cent year to date in May. All other areas of domestic deposits, including deposits from government related entities (GREs) and private depositors, saw a monthly fall in May. The increase in net government deposits markedly outpaced the fall in net GRE deposits. Meanwhile, gross non-resident deposits rose by 0.5 per cent month on month and are up 5.3 per cent. Non-resident deposits accounted for 11.5 per cent of the total deposit base in May.
“We expect the UAE to achieve a consolidated fiscal surplus in 2018 with the higher revenues, largely due to oil earnings but also VAT-related income,” said Thirumalai Nagesh an Economist at ADCB.
The loan-to-deposit (L-to-D) ratio moderated marginally in May to 96.7 per cent from 96.8 with a slightly greater rise in deposits than loans.
Despite the strong liquidity in the banking sector, Eibor [Emirates Interbank Offered] rates have continued to rise in 2018, reflecting a number of factors including the increase in benchmark rates and the introduction of a new methodology for the calculation of Eibor in mid-April.
The premium between the Eibor and US Libor rates has widened since April, standing at around 15 bps. This is after the differential narrowed substantially in February and March, with Eibor at times trading at a discount to US Libor. Analysts expect the central bank to raise the domestic interest rates in tandem with the Fed rate hike to maintain the 25 bps premium of the UAE’s repo rate against the Fed rate.