UAE bank deposits up as credit remains flat
BANKING SECTOR REPORTS MULTI-YEAR GROWTH IN LIQUIDITY
The UAE banking sector deposits surged by 0.6 per cent month-onmonth in July while the credit growth remained flat according to the banking sector indicator, a monthly statistical bulletin from the Central Bank of UAE.
An analysis of the data by the Economics Team at the Abu Dhabi Commercial Bank (ADCB) showed this is the third consecutive monthly increase in deposits and this has resulted in the annual growth rate surging 6.5 per cent year-on-year from 6 per cent in June and the year-to-date deposit expansion to 4.2 per cent.
“The month-on-month rise [in deposits] was driven by both the non-resident segment [up Dh6 billion in July] and the resident segment [up Dh4.6 billion],” said Monica Malik, Chief Economist of ADCB.
“Non-resident deposits were up 2.3 per cent year-to-date in July 2018 despite domestic liquidity improving across the system this year, supported in large part by higher government deposits [up 28.5 per cent year-on-year].”
Non-resident deposits accounted for 11.6 per cent of the total in July, moderately lower than its 11.8 per cent share in December 2017; this was due to the stronger growth in domestic deposit driven by the private sector.
Data showed that government deposits were flat in July whilst government related entities (GRE) deposits contracted by 0.9 per cent. “This, alongside the monthly rise in gross government loan growth, resulted in net government and GRE deposits in the banking system falling moderately in July. Nevertheless, combined net government and GRE deposits remain high and close to their multi-year high reached in June 2018,” said Thirumalai Nagesh, an economist at ADCB.
Total credit growth in the UAE remained flat in July as recent trend of deleveraging by GREs moderated last month after two months of growth.
Analysts said this steady level is in line with the traditionally slower activity seen over the summer period. The government credit growth of 0.9 per cent last month and private corporate sector credit growth of 0.1 per cent saw positive monthly loan growth in July, though this was counterbalanced by a contraction of 0.9 per cent in the growth of credit to the GRE and a decline of 0.1 per cent to retail segments.
The overall data still points to stronger credit demand in 2018 so far with gross monthly credit growth averaging 0.4 per cent monthon-month in seven months of 2018, up from 0.2 per cent over the same period in 2017.” Monica Malik | Chief Economist of ADCB
Overall deleveraging
GRE segment has continued to show overall deleveraging in 2018 with gross credit falling by 3.1 per cent year-to-date, pointing to ongoing rationalisation in the sector.
Credit to individuals is down 0.2 per cent year-to-date, which analysts said is likely linked to softer consumer demand with the introduction of value-added tax (VAT) in January and continuing labour market uncertainties.
“The overall data still points to stronger credit demand in 2018 so far with gross monthly credit growth averaging 0.4 per cent month-on-month in seven months of 2018, up from 0.2 per cent over the same period in 2017,” Malik said.
“We believe that this uptick reflects some progress with government sponsored projects in 2018, alongside the refinancing of some existing loans.”
The UAE banking sector is experiencing very high levels of liquidity as the loan-to-deposit ratio has declined to a multiyear low of 95.8 per cent last month, the lowest since December 2014.
The decline in loan to deposit ratio reflects the outpacing of deposit growth to credit growth.