x Abu Dhabi, UAETuesday 23 January 2018

Regional unrest lifts UAE banks

Bank deposits and loan growth pick up within the UAE banking system.

Bank deposits in the UAE picked up last month as regional unrest bolstered the financial system's safe haven status.

Deposits advanced 2.1 per cent to Dh1.07trillion (US$293.7bn) compared with the previous month, according to the latest Central Bank data.

"This is compatible with the idea of regional unrest having an impact, although there are other potential reasons behind the rise," said a banking analyst based in Dubai, who asked to remain anonymous.

Egypt, Tunisia and other economies in the Middle East suffered last month as protests and political upheavals spilled over into their financial systems.

As a regional financial centre, analysts had expected money to flow to the UAE from troubled countries nearby.

Loans and advances increased by 0.6 per cent to Dh1.04 tn, the regulator said.

The UAE's loan-to-deposit ratio was 97 per cent last month, the data showed. Loan-to-deposit ratios have steadily fallen below 100 per cent as liquidity in the banking system improves.

Bank nervousness about a build-up of bad loans on balance sheets had been blamed on sluggish levels of lending.

Total bank assets rose 1.8 per cent last month to Dh1.66tn.

Meanwhile, M3 money supply increased by 2 per cent at the end of last month compared with January.

The broadest indicator of money supply and an indicator of future inflation, M3 includes normal savings and currency outside banks.

Consumer price inflation eased to a three-month low of 1.5 per cent on an annual basis last month as prices fell because of lower housing costs.

The IMF forecasts inflation will reach 4 per cent this year, mainly because of the higher costs of imported food.

M1 money supply, which includes currency in circulation plus money deposits, rose 2.4 per cent last month.

M2 rose by 2.9 per cent last month. During the first two months of the year, M2 rose by 4.1 per cent, according to the data.