Dubai: Deposits in the UAE’s banking system rose in September as credit growth continued to be anaemic, according to UAE Central Bank monetary data.
Gross credit growth remained lacklustre in September at just 0.1 per cent month on month. This reflected the drop in foreign credit of 2.4 per cent month on month and soft domestic loan growth of 0.3 per cent.
On a yearly basis, gross credit was up just 0.9 per cent year on year in September. “There was a statistical impact on the yearly credit growth numbers from recent accounting adjustments to offset refinancing against personal loans from August 2017. This is visible in the contraction in year on year growth in retail loans. Nevertheless, despite this accounting change, we see overall loan demand remaining soft,” said Monica Malik, Chief Economist of Abu Dhabi Commercial Bank (ADCB).
In September, loan growth from government related entities (GREs) fell 0.6 per cent month-on-month, bringing the yearly contraction to 6.7 per cent. Government borrowing from the banking sector was steady in September, showing no change from the August figure. There was some positive but weak rise in private sector credit growth of 0.4 per cent month-on-month September.
Retail credit growth saw its strongest positive rise year to date in September of 0.7 per cent month-on-month compared to an average of 0.3 per cent in the first seven months of 2017 (August data excluded to remove the accounting adjustment). “We believe that there could be some support to retail credit growth in the fourth quarter ahead of the introduction of VAT. Separately, there are signs of a pick-up in investment activity, though we again highlight the other forms of funding available such as bond market, international export-credit agencies,” Malik said.
Deposits in the banking system increased by 0.9 per cent month-on-month in September after having fallen 0.6 per cent in August.
This was the sharpest monthly increase since March 2017, and is likely to have been supported by banks focusing on raising deposits at the end of the quarter. Anticipation of stronger demand for credit after the quieter summer period might also have contributed to the increase. By contrast, September saw the yearly deposit growth rate decelerate to 5.8 per cent from 7 per cent in August, mainly reflecting the strong pace of growth in September 2016.
The private sector and GRE segment drove the monthly increase in resident deposits. Government deposits in the banking sector contracted 2.5 per cent month-on-month in September, though they remain up a strong 18.7 per cent year on year. Non-resident deposits also saw positive growth of 3.3 per cent. Non-resident deposits are still down 5.4 per cent year to date.
Liquidity eases
The September monetary data point to a further easing in banking sector liquidity as monthly deposit growth continued to outstrip credit growth. The gross system-wide loan-to-deposit ratio moderated further to 99 per cent in September, down from 99.8 per cent in August. With the monthly rise in GRE deposits and contraction in loan growth, the sector returned to be a net depositor in the banking system in September.