Liquidity surges 3.3% in March on capital inflows

ABU DHABI — The banks and financial institutions in the country have shown higher levels of liquidity during the first quarter on strong oil revenues and capital inflows due to rising unrest in the Middle East.

By Haseeb Haider

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Published: Thu 28 Apr 2011, 11:22 PM

Last updated: Tue 7 Apr 2015, 3:35 AM

The money supply, which shows currency in circulation and currency at banks, has increased by 3.3 per cent month-on-month.

“The money supply increased to Dh49.6 billion at the end of March from Dh48 billion in February 2011,” according to the data issued by the Central Bank of the UAE on Wednesday.

Bank deposits also rose 2.4 per cent during the month of March 2011, reaching Dh1.105 trillion.

The money supply M1, which comprises currency in circulation plus monetary deposits, i.e., current accounts and call accounts at banks, increased 3.7 per cent from Dh242.7 billion to Dh251.6 billion in March.

The money supply M2, which comprises M1 plus quasi-monetary deposits, the sum of resident time and savings deposits in dirhams, commercial prepayments in dirhams and resident deposits in foreign currencies, increased by two per cent from Dh818.3 billion to Dh834.7 billion in March this year.

And, money supply M3, which comprises M2 plus government deposits at the banking sector, increased by 3.1 per cent from Dh1.0177 trillion in February 2011 to Dh1.0489 trillion in March.

Meanwhile, total bank loans and advances net of provisions and interest in suspense decreased by 0.1 per cent, reaching Dh1.0481 trillion, and total bank assets increased by 2.3 per cent, reaching Dh1.6959 trillion at the end of March this year.

During the first quarter of 2011, intermediary monetary aggregate M2 increased by 6.1 per cent, while bank deposits increased by 5.3 per cent and bank loans and advances increased by 1.6 per cent.

Jahangir Aka, Senior Executive Officer, Middle East, at the investment management company SEI Investments, said that the rise in liquidity after a period of low liquidity is a very ‘positive’ thing.

The impact has already been seen in the market with the reduction in EIBOR rates to 2.6 per cent down from 4.5 per cent about 180-days ago, and subsequent impact on the cost of borrowing, he said.

“The higher liquidity suggests that the banking system is much healthier, it’s got a better balance of deposits to debt ratio which is good for the balance sheet,” he added.

“Given that we were in a lower liquidity environment this is very positive, and it reflects the improving mood of the economy in the UAE,” he said.

Aka said that a part of the reason why liquidity is up in the country is due to the fact that there has been capital inflows due to the regional political situation, as the UAE is a safe place for high net worth individuals to bring family and money as well.

Liquidity will improve loan to deposit ratios which got imbalanced in the last couple of years due to irrational lending.

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