Banks remained reluctant to increase lending significantly in April as loan growth trailed a rise in deposits.
Central Bank data released yesterday showed deposits reached Dh1.12 trillion (US$305 billion), a rise of 2.1 per cent from March, but loans and advances edged up only 0.6 per cent, to Dh1.05tn over the same period.
The latest evidence of slow credit growth comes a week after Sultan al Suwaidi, the Central Bank Governor, asked banks to step up lending to businesses to reflect improving liquidity.
A continuing build-up of non-performing loans has been among the reasons cited by banks for their reluctance to increase their lending. Non-performing loans rose to 6.67 per cent of total loans at the end of April, up from 6.25 per cent at the end of December, Saeed al Hamiz, the senior executive director of banking supervision and examination at the Central Bank, said last week.
Lenders' assets dipped by 0.04 per cent to Dh1.69tn in April from the previous month, data showed.
Other Central Bank data indicated a gradual return to health by the financial system.
Money supply M2, an indicator of future inflation, rose by 1.9 per cent to Dh850.5bn at the end of April from the previous month.
M2 includes currency in circulation, monetary deposits, time and savings deposits held by UAE residents, and commercial prepayments and foreign currency deposits by residents.
"We are in a low inflationary environment and the low rise in money supply equates to low future inflation," said Tudor Allin-Khan, the chief economist at Alembic HC Securities in Dubai.
Money supply M1, comprising currency in circulation plus monetary deposits, rose by 3.8 per cent to Dh261.2bn in April compared with March.
The main driver of money growth was a 5.3 per cent rise in government deposits over the period, said a banking analyst. Private-sector deposits also rose.