Liquidity

The gross loan-to-deposit (L/D) ratio rose to 95.7 per cent in October from 94.8 per cent in September on the back of positive monthly credit growth and a fall in deposits.

“Overall system-wide liquidity conditions remain comfortable and the October L/D ratio remains below the August levels. However, the rise in foreign deposits suggests that some banks still require external funding, which tends to be more expensive, possibly due to the concentration of government deposits in certain banks,” said Malik.

The strong liquidity conditions are helping to limit the positive spread between the EIBOR and LIBOR rates from historical levels, though they have widened from the narrow differential seen in early 2018 (sometimes negative).

“We expect to see a further rise in UAE benchmark rates with the central bank expected to follow the Fed with further rate hikes. We see the Fed rates rising by 25 basis points (bps) at the December Fed meeting and by a further 50 bps in the first half of 2019,” said Malik.