x Abu Dhabi, UAESunday 23 July 2017

Deposits exceed loans for first time since crisis

For the first time in almost two years, the value of deposits is larger than the value of loans at UAE banks.

The value of deposits at UAE banks exceeded loans for the first time in almost two years last month, according to figures released yesterday by the Central Bank, but analysts cautioned that serious concerns remained about banks' asset quality.

Bank deposits at the end of last month totalled Dh1.05 trillion (US$286 billion) - Dh16bn more than the total amount of loans. The last time deposits exceeded loans was in November 2008, just as the global financial crisis was beginning to be felt.

Analysts were surprised by the sharp rise in deposits, an increase of Dh40bn over September.

"That is a huge figure for bank deposits. It is a surprisingly large leap," said Raj Madha, a banking analyst with Rasmala Investment Bank in Dubai. He had projected deposits would increase by about Dh5bn.

The Central Bank data, which were released after the close of business yesterday, suggest the new deposits are not from government sources. This indicates that private investors are possibly moving money to the country because they perceive the level of risk to be declining. Bank officials could not be reached for comment on the figures.

The latest numbers were released on the same day that Bank of America Merrill Lynch rated 13 of 15 bonds sold by UAE banks as "underweight", including those from Emirates NBD, the region's biggest bank, and National Bank of Abu Dhabi, the second-largest lender.

"There are still concerns about asset quality given all the banks' exposures to real estate and infrastructure lending," the London-based research analysts Tolu Alamutu and Ali Dhaloomal wrote in a note to investors.

More than $15bn of borrowings mature next year, and most of that will need to be refinanced, the analysts said.

Debt issuance has taken a hit from a slump of as much as 50 per cent in property prices in Dubai since 2008.

But some banking experts dismissed concerns raised by the recommendation.

"I'm not that nervous about this, and I don't have in mind a serious accident [with banks] here," said Philippe Citerne, a former chief executive of the French bank Societe Generale, who was in Abu Dhabi yesterday. "I've taken [Bank of America Merrill Lynch's note] with a pinch of salt."

John Sfakianakis, the chief economist at Banque Saudi Fransi, said that while government stimulus measures had contributed to deposit growth, the figures also represented a slowdown in lending.

"The effect of the crisis brought to a halt the type of bank lending that was once acceptable, so naturally the loan-to-deposit ratio is subsiding and will continue to subside," he said.

* With reporting from Farah Halime

breagan@thenational.ae

fhalime@thenational.ae