Dubai World trickle down helps swell bank balances

Bank balances across the country grow by more than Dh28.1 billion (US$7.65bn) in the past two months.

Bank balances across the country grew by more than Dh28.1 billion (US$7.65bn) in the past two months in a spike analysts believe could be due to a trickle down of financial support for the heavily indebted Dubai World conglomerate. Deposits grew at their fastest in eight months, increasing by Dh13.5bn to reach Dh998.9bn last month from June, data released by the Central Bank yesterday showed.

"One possibility is that this increase is related to the bailout of Nakheel and funding of the Dubai Financial Support Fund," said Raj Madha, the senior banking analyst at Rasmala Investments in Dubai. "We were expecting Nakheel to get funding in the second quarter and it is likely this would have come from the Central Bank sources transferred from outside the financial system." The absence of strong loan growth to support the rise in deposits further reinforced the suggestion that the money was from an injection of government cash, he said.

A property market slowdown in Dubai linked to the global credit crunch prompted a series of Government assistance packages to help the repayment of debts owed by the troubled conglomerate Dubai World, including its property unit Nakheel. Local and international banks have suffered from their exposure to the financial crisis. The Dubai Government offered $8bn of new funds in March to assist Nakheel in repaying its creditors. Nakheel has since agreed on terms with its main lenders.

Nakheel said yesterday it had repaid about Dh2.5bn owed to creditors last month. Dubai borrowed $10bn from Abu Dhabi in December after receiving another $10bn in February last year from the Central Bank to boost liquidity in the emirate. Specific provisions for non-performing loans and general provisions combined rose by Dh1.4bn last month from June, according to the Central Bank data. "It could be that the smaller banks did not provision well in the second quarter and are playing catch-up in the third quarter," said Mr Madha.

Other data from the Central Bank showed M1 money supply, the narrowest measure of money in the financial system, eased to an annual 5.3 per cent growth rate last month from 6.3 per cent in June. M2 money supply, which includes time and savings deposits, grew 5.2 per cent last month after 5.4 per cent growth in June. M3 money growth, the widest money supply gauge, slowed to 2 per cent last month from 2.1 per cent in June.