Dubai: The UAE banking sector witnessed a sharp decline in number of branches over the past one year, thanks to the fast adoption of banking technologies, consolidation in the banking sector and a strong drive towards cost efficiencies.
According to the 'United Arab Emirates Monetary, Banking and Financial Markets Developments Report' of the Central Bank of UAE for the first quarter of 2021, the number of locally incorporated banks remained constant at 21 banks at the end of the first quarter of 2021. The branches of these locally incorporated banks decreased to 534 branches at the end of March 2021 from 640 at the close of first quarter 2020. While the number of regular branches declined, electronic banking service units of these banks increased to 35 units at the end of the first quarter of 2021.
A substantial reduction in branch operations of banks in the country is largely attributed to high rate of technology adoption and structural changes in the banking sector in the country.
“The technological and structural advancements in the UAE financial sector has resulted in increased accessibility of mobile banking applications, online banking and ease in the use of automated teller machines (ATM) for the past several years. These improvements continue to pay off by enhancing smooth operations of the banking system,” the central bank report said.
Bank assets, loans and deposits
At the end of the first quarter of 2021 total assets of banks operating in the UAE decreased by 0.4 per cent quarter on quarter, reaching Dh3.17 trillion. During the period between March 2020 and March 2021, the total assets of banks operating in the UAE increased by 1.5 per cent.
While total credit decreased by 1.4 per cent on quarter on quarter basis in the first quarter 2021, reaching Dh1.75 trillion, on an annual basis, gross credit decreased by 0.8 per cent
At the end of the first quarter of 2021, total deposits of resident and non-resident customers with banks operating in the UAE fell by 0.2 per cent on quarter on quarter basis, reaching Dh1.88 trillion and resident deposits decreased by 0.3 per cent to Dh1.67 trillion 2021. On an annual basis, resident deposits increased by 2.6% and non-resident deposits decreased by 6.1 per cent.
Capital and reserves
Aggregate capital and reserves of banks operating in the UAE decreased by 3.7 per cent quarter on quarter, reaching Dh378.1 billion at the end of the first quarter of 2021. At the end of the first quarter of 2021, total capital adequacy ratio stood at 17.9 per cent, including the 2.5 per cent capital conservation buffer requirement and the 8.5 per cent tier1 ratio, prescribed by the Central Bank regulations in compliance with the Basel III guidelines.
Although the Capital Conservation Buffer remains at 2.5 per cent, banks are allowed to tap into the capital conservation buffer up to a maximum of 60 per cent without supervisory consequences, effective 15 March 2020. The Domestic Systemically Important Banks’ (D-SIBs) buffer remains the same; however, they are allowed to use 100 per cent of their D-SIB buffer without supervisory consequences, effective 15 March 2020. Both these regulatory relaxations were introduced as part of central bank support to the banking sector in response to the COVID-19
At the end of the first quarter of 2021, the Central Bank’s foreign assets increased by 1.1 per cent quarter on quarter, reaching Dh392.4 billion. This increase was mainly attributed to quarterly increases in foreign securities by 2142.6 per cent (a quarterly increase of Dh85.9 billion) and other foreign assets by 25.7 per cent (a quarterly increase of Dh9.2 billion). Over the past 12 month period (from March 2020 to March 2021), central bank foreign assets increased by 0.4 per cent.