Bank lending and deposits decreased during October, coinciding with a slowdown in business expansion last month, new data shows.
Business growth and banking activity slows in the UAE
Bank lending decreased in October for the second month running and deposits continued to fall as funds were withdrawn from the UAE's banking system.
The slowdown in loan growth coincided with a deceleration of business growth during November, new data show.
Net loans and advances throughout the UAE's banks fell 0.2 per cent in October to Dh1.073 trillion, new data released by the Central Bank shows.
During the same period, bank deposits fell 0.4 per cent to Dh1.062 trillion.
The UAE banking sector experienced a massive influx of deposits at the beginning of this year, with Dh78.7 billion in deposits entering the financial system between January and the peak in April. However, the latest figures reveal that surge in liquidity has been almost completely reversed, leaving levels of bank lending above deposits for the second consecutive month.
As banks find themselves less able to lend without overextending their capital base, the latest HSBC Purchasing Managers' Index signalled "a weaker improvement in the health of the sector" during November.
The UAE's monthly PMI was 52.5, down from 53.4 in October. A reading above 50 signals expansion.
"Favourable market conditions, good demand, competitive pricing and promotional activities had all supported the latest increase in new work," HSBC wrote in its report. "New export orders also rose at a weaker pace since October, with growth hitting a ten-month low. By company size, small firms posted the fastest increase in total new business, while large firms recorded the most marked rise in new work from abroad."