Key financial soundness indicators such as liquidity, funding, and capital adequacy of UAE’s banking sector point to healthy balance sheet trends amid modest credit growth. Image Credit: Ahmed Ramzan/Gulf News Archives

Dubai: The aggregate data on the UAE’s banking sector for the first nine months from the Central Bank of UAE (CBUAE) showed that banks remain fundamentally strong with resilient growth in assets and liabilities.

With the banks set to announce the full-year 2021 results starting next week, central bank data point to improved operating environment supporting balance sheet growth, improved asset quality, profitability and funding.

Data for the third quarter of 2021 showed total bank deposits increased on both yearly and quarterly basis. However, gross credit contracted on a yearly basis, but the pace of decrease eased with a moderate growth during the quarter.

According to CBUAE, overall, the financial soundness indicators remained robust during this period, on the back of the gradual recovery of the economy. CBUAE reaffirmed during the quarter its continued commitment to supporting the economic recovery through the Targeted Economic Support Scheme (TESS) and gradual withdrawal of the emergency measures introduced in response to the pandemic.

Deposits and lending

Total assets slightly fell in the third quarter by 0.2 per cent year on year while gross bank credit decreased by 1.6 per cent year on year. This is largely attributed to a contraction in the corporate loan portfolio compared to a year ago.

On a quarter on quarter basis credit growth rebounded in Q3 2021, in particular for domestic private sector credit which recovered moderately by 0.4 per cent quarter on quarter.

Total bank deposits improved by 1.8 per cent in the third quarter despite a decline in government deposit. Private sector deposits increased by 4.7 per cent year on year as non-resident deposits surged 27.1 per cent.

About 80 per cent of the deposits at the end of Q3 2021 were at conventional banks and the remaining 20 per cent at Islamic banks. Also, the share of national and foreign banks’ deposits represented 88.2 per cent and 11.8 per cent, respectively.

Financial soundness

Key financial soundness indicators such as liquidity, funding, and capital adequacy of UAE’s banking sector point to healthy balance sheet trends amid modest credit growth.

The Advances to Stable Resources Ratio (ASRR) of the banking system increased from 77.7 per cent at the end of June 2021 to 77.9 per cent at the end of September 2021, which indicates that the structural funding of the banking sector remained sound.

Loans to Deposits (LTD) ratio for the whole banking system decreased to 91.5 per cent at the end of the third quarter, slightly below the 92.7 per cent at the end of the previous quarter, due to the higher growth in deposits compared to loans during the period.

Total liquid assets at banks at the end of the third quarter of 2021 stood at Dh485.2 billion, increasing by 8.2 per cent in Q3, 2021. The UAE banking system remained well capitalized, with an average Capital Adequacy Ratio (CAR) at 17.7 per cent.

Personal remittances on the rise
In Q3 2021, outward personal remittances increased by 9.2 per cent or Dh3.7 billion year on year. There was a rise of outward remittances through banks by Dh5 billion or 29.2 per cent, while transfers through exchange houses dropped by Dh1.3 billion or 5.1 per cent.
The top five countries for outward personal remittances during the second quarter were India, Pakistan, the US, the UK and the Philippines, accounting for 26 per cent and 12.3 per cent, respectively for the first two, while the last three accounted for 6.6 per cent each.