Bank lending dipped in December and deposits returned to the UAE banking system in large volumes, narrowing the gap between loans and deposits across the sector.
Bank lending decreased by 0.3 per cent in December to Dh1.07 trillion (US$291.3 billion), a four-month low, according to the Central Bank. Total credit extended last year was 3.8 per cent higher than for the previous year.
However, a surge of liquidity pushed deposit levels to their highest since August. Deposits rose 1.5 per cent from November to Dh1.06tn, an increase of 1.9 per cent from the same period a year earlier.
Bank lending has outstripped deposits in recent months, leaving banks positioned with slightly too little capital from deposits to cover their lending books. Banks' overextended positions contributed to their woes after trouble emerged at Dubai World and significant numbers of loans had to be restructured.
Banking-sector liquidity in the Emirates received a huge boost during the Arab Spring as customers in the Middle East moved deposits out of countries experiencing unrest and a sharp rise in oil prices flooded the coffers of petroleum-exporting Gulf states with cash.
However, after peaking in April, this trend went into reverse as Indian expatriates sent money home, taking advantage of the weak rupee, while European banks pulled deposits out of the UAE banking system to bolster their capital positions amid the euro-zone debt crisis.