Dubai: The UAE's banks are sufficiently liquid to support the country's economic growth and the problems in Europe and US have no direct impact on the country's financial system, said Shaikh Ahmad Bin Saeed Al Maktoum, head of the Dubai Supreme Fiscal Committee and Chairman of Emirates NBD, the country's largest bank.

"Banks have lots of cash and lots of liquidity. We're not directly affected [by Europe] but I'm sure some banks which are here could have certain issues," Shaikh Ahmad told reporters on the sidelines of the 19th Annual Middle East Oil and Gas Conference yesterday.

Commenting on the business outlook for Dubai, he said the government is satisfied with the composition of the emirate's economy and urged companies to press ahead with restructuring plans.

"I am very happy with the core business of Dubai," which includes trade and tourism, said Shaikh Ahmad, "There are some companies that must continue to work on their restructuring."

Deposits exceed loans

Latest Central Bank statistics show bank deposits in the UAE exceeded loans for the 11th month in August.

While loans rose 0.5 per cent in August from July to Dh1.05 trillion, deposits dropped 3.2 per cent to Dh1.078 trillion.

Analysts said yesterday that the UAE's GDP is expected to grow more than 4.5 per cent largely driven in oil sector growth.

"In the UAE, we retain our 2011 GDP growth forecast of 4.6 per cent as we estimate growth in Abu Dhabi's oil sector at 6.5 per cent," Khatija Senior Economist - GCC at Emirates NBD, wrote in a note yesterday.

Although there is some evidence of tighter liquidity conditions in recent weeks, with deposit growth slowing and banks reducing their deposits at the central bank, Haqe said domestic liquidity is not yet a cause for concern.

However she added that the rising CDS (credit default swap) spreads for Dubai reflect tighter liquidity conditions and increased risk aversion in global capital markets, which would increase (re)financing costs for Dubai borrowers.

In recent months many UAE banks have relaxed their lending norms. Analysts say lending will boosted further as liquidity levels improve.

"Banks can't hold on to cash for too long before they started lending. The signs to relaxation in the lending is visible in the mortgage sector," Shehab Gargash, Managing Director of Daman Investments, told Gulf News recently.

While mortgages grew year on year 15 per cent in 2010, real estate loans as per cent of total credit facilities stood at 17 per cent of total loans and advances by banks.