Dubai: Credit growth in the UAE’s banking sector declined on monthly and year on year basis in October as deposit growth witnessed a steady rise according to latest data from the Central Bank of UAE.
The data analysed by the Economics Team at Abu Dhabi Commercial Bank (ADCB) showed total credit fell month on month by 0.7 per cent October, the first monthly drop this year. On an annual basis, loan growth decelerated to 3.8 per cent year on year from 5 per cent in the previous month and 4.8 per cent at end-2018.
Most main components of credit saw a monthly decline in October, with the exception of the government loans which witnessed a 0.4 per cent growth. On a year to date basis, the government loans grew 15.1 per cent while the loans by government related entities (GREs) grew 5.2 per cent.
While government and GREs continue to drive loan offtake in the country, private sector loan growth has been sluggish with a meagre 1 per cent year to date in October, likely reflecting the challenges facing economic activity, according to ADCB economists.
Data showed, within the private sector, retail loans fell by 0.1 per cent month on month in October after four consecutive months of steady or positive monthly growth. Retail loans are down 1.2 per cent year to date and 1.7 per cent year on year. Credit to corporates also contracted by 1 per cent October.
Deposits picking pace
Deposits in the UAE banking sector expanded by 1 per cent in October after rising by 2.2 per cent in September. The robust growth in deposits in the last two months has pushed up the annual growth rate to 5.7 per cent.
The October expansion was driven by both resident and non-resident deposits. The rise in domestic deposits was due to the GRE segment that was up by Dh7.2 billion and the private sector, up Dh7.1 billion in October. Government deposits contracted by 3.4 per cent October, after a strong rise in the previous month of 18.4 per cent.
“All components of resident deposits rose on a year on year and YTD basis in October. Gross non-resident deposits expanded by a robust 8.4 per cent after two consecutive months of contraction. This suggests that the recent rise in resident deposits could have been concentrated to a degree in certain banks, resulting in others looking at generally more expensive overseas deposits,” said Monica Malik, Chief Economist of ADCB.
The system-wide loan-to-deposit ratio moderated to 93.9 per cent in October down from 95.5 per cent in September amid a rise in deposits and fall in loans. This was the lowest reading for the ratio since August 2014’s 93.7 per cent reflecting the ample system-wide liquidity.