Capital dries up as loans by banks top deposits

Bank lending exceeded deposits for the third month running last month as an influx of capital at the start of the year continues to evaporate.

Bank lending in the UAE exceeded deposits for the third month running last month as an influx of capital at the start of the year continues to evaporate.

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Loans increased by 0.1 per cent to reach Dh1.074 trillion (US$292.39 billion), according to data released by the Central Bank yesterday.

Deposits declined by 0.8 per cent to reach Dh1.053tn. As a result, loans exceeded deposits by Dh20.7bn, the data showed.

The banking sector experienced a huge inflow of capital at the beginning of the year, with Dh78.7bn in deposits entering the financial system between January and the peak in April. Investors moving their cash from nearby Arab economies hit by unrest was cited by analysts at the time as one of the reasons for the influx.

However, the latest data suggests the surge in liquidity has been almost completely reversed, leaving levels of bank lending above deposits.

Lending rose by 4.2 per cent in the first 11 months of the year, the figures showed. But deposits increased only by 0.4 per cent over the same period.

Banks have been working hard to try to build up their deposits and reduce their lending exposure since the bursting of a property market-induced credit bubble in 2009.

The Central Bank in February also put in place limits to curb the amount banks can lend to retail customers.

Other data released by the regulator yesterday hinted at a more mixed performance of the economy. Money supply M2, which comprises currency in circulation and resident deposits, rose by 0.4 per cent from Dh818.9bn at the end of October to Dh822.1bn at the end of last month.

M1, which includes currency in circulation and monetary deposits, increased by 2.2 per cent from Dh258.8bn at the end of October to Dh264.6bn at the end of last month.

M3, which also includes government deposits, rose at a slower rate. The gauge edged up by 0.6 per cent from Dh1.003tn at the end of October to Dh1.009tn by the end of last month.

Other recent data has signalled a slowdown in the economy. Business activity and new export orders decelerated last month at a lower rate than October, according to the latest HSBC purchasing managers' index.

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