Special Features
Loan-to-deposit Gap of UAE Banks Widens by 34.2 Per Cent: Central Bank
The loan-to-deposit gap of the UAE’s banks increased by 34.2 per cent in January compared to December, according to the data released by the UAE Central Bank on Monday.The difference between loans made by the banks and the deposits they held increased to Dh47.1 billion in January from Dh35.1 billion in December, creating a gap of Dh12 billion.
Deposits fell by Dh14.5 billion, and lending also reduced by Dh2.5 billion. Total deposits held by all UAE banks stood at Dh968.1 billion in January compared with Dh982.6 at the end of December. Total loans outstanding decreased by 0.24 per cent to Dh1015.2 billion.
The banks are strengthening their balance sheets to withstand rising loan defaults by both individuals and corporates badly bruised by the financial crisis.
The UAE Central Bank Governor Sultan bin Nasser Al Suwaidi said this month that the country’s economy is ’resilient, with a 2.3 per cent rise in bank lending last year, so there is no need for the government to inject more liquidity into the banking system.
"When there is a need, then of course we will consider, but there is no need for the time being," Al Suwaidi said, adding: "The liquidity is good."
Some analysts and bankers recently commented on the need for pumping more liquidity into the system, to help banks write off bad loans from their balance sheets, and boost lending to power economic growth of the Arab world’s second argest economy.
At the end of January, banks had earmarked Dh33.4 billion for specific defaults and Dh12.4 billion as general provisions. Specific provisions are for loans that are already in default, while general provisions are for doubtful debts.
Branch network of local banks expanded to 679 branches, which shows the addition of four branches during the last month. Despite challenging environment this year national banks branch network jumped by 68 branches compared with 611 branches at the end of last year.
Money Supply Grows
Separately, the central bank reported that the total amount of currency in circulation plus demand deposits increased in January. The money supply increased by Dh7.1 billion to Dh229.2 billion in January compared to last year’s fourth quarter closing of Dh222.1.
Another measure of money supply called M2, which includes M1 plus time and savings deposits, rose to Dh745.3 billion in January from Dh733.2 billion at the end of 2009.
The broadest measure of money supply M3, which encompasses M2 and government deposits, fell sharply by Dh12.7 billion to Dh034.1 compared to the last year’s closing Dh946.8 billion.
