Dubai: Deposits and loans in the UAE banking system grew in September largely driven by government and government related entities, according to data from the Central Bank of UAE.

System-wide deposits rose by a solid 2.2 per cent month on month in September, the fastest pace of expansion this year. As a result, the yearly growth rate accelerated to 4.3 per cent year on year from 3.6 per cent in the previous month.

“The September monthly expansion was largely driven by the government segment. Government deposits increased by a robust 18.4 per cent month on month (Dh49.2 billion), taking their y-o-y growth in the month to 10.7 per cent and the year to date increase to 9.1 per cent,” said Monica Malik, Chief Economist of ADCB.

Net government and GRE [government related entities] deposits in the banking system also strengthened in September, reflecting the jump in government deposits, Meanwhile, gross non-resident deposits fell by 3.4 per cent month on month in September. “This likely reflects banks shedding generally more expensive foreign deposits on the back of having sufficient domestic liquidity,” said Malik

Gross credit growth accelerated to 0.8 per cent month on month in September — its strongest pace of expansion this year. On a yearly basis, loan growth accelerated to 5 per cent year on year in September from 4.6 per cent in August

“The government and GRE segments have seen an acceleration whilst private sector credit growth has slowed, likely reflecting the challenges facing the economy,” said Thirumalai Nagesh, an economist with ADCB.

Loans to the government have increased by 14.6 per cent year to date and to GREs by 6.6 per cent, with the private sector softer at 1.8 per cent. Despite the lower interest rates loan growth in the retail segment remained subdued.