NRIs drive UAE bank deposit growth

dubai - Gross credit returned to positive monthly growth in July

Driven by non-resident segment, banking sector deposits in the UAE rose by a moderate 0.2 per cent month on month to Dh3.1 billion in July as banks got on course to achieve a predicted profit growth of around five per cent in the second half of 2017, as bad loans ease and lenders weather the Qatar crisis, analysts said.

The July deposit growth, which helped to push up the annual growth rate to 7.1 per cent year on year after June's 6.4 per cent, was notably driven by the non-resident segment, which had seen six consecutive months of decline before July, according to Monica Malik, chief economist, Abu Dhabi Commercial Bank.

"It is yet to be seen whether this is a one-off or will develop into a trend, though it could tentatively indicate a reduced ability to raise deposits domestically," said Malik.

Non-resident deposits rose by 2.8 per cent month on month to Dh5 billion in July, though they are still down 7.1 per cent year to date.

She said the fall in non-resident deposits in the first half was likely due to improving system-wide liquidity, partly due to higher government deposits, allowing banks to shed their more expensive deposits.

Non-resident deposits accounted for 11.6 per cent of the total in July, down from 12.7 per cent in December 2016. Meanwhile, domestic deposits fell by 0.1 per cent, the second consecutive monthly drop, albeit less than the 1.7 per cent contraction in June.

The greatest monthly fall in deposits was in the GRE (government-related entities) sector, of 3.4 per cent month on month, though this was after a strong rise of 4.9 per cent in the previous month. Government deposits also saw a monthly drop in July, falling 0.9 per cent, but are still up 5.8 per cent year on year. Moreover, both the government and GRE sectors remained net depositors in the banking system.

Malik said in the monthly 'Monetary Monitor' that gross credit returned to positive monthly growth, reaching 0.2 per cent in July after a contraction of 0.5 per cent in the previous month. "This resulted in the annual rate ticking up to 3.5 per cent year on year from 3.1 per cent in June.

Nevertheless, the monthly rise was dampened by a contraction in foreign credit of 1.2 per cent, with domestic loan growth expanding by 0.3 per cent," said the report.

All domestic sectors saw a monthly rise in loan growth, with the government sector seeing the strongest increase. Within the private sector, monthly retail credit growth has outstripped the expansion in the corporate segment for the last two months. Overall, the data still point to weak credit demand, with gross monthly credit growth averaging 0.2 per cent month on month in July, down from 0.5 per cent over the same period in 2016.

In July, the gross system-wide loan-to-deposit ratio remained steady at 100.1 per cent, in line with June's figure, with monthly credit and deposit growth expanding at roughly the same pace. Nevertheless, liquidity conditions have eased year to date in 2017 versus 2016, with deposit growth largely outstripping credit growth, said the report.

Profitability at the four largest UAE banks will remain solid in the next 12 to 18 months on the back of solid interest income, despite pressure on fee and commission income, said Moody's Investors Service in a new report.

Financial results of UAE banks in the second quarter of this year point to improving profitability, modest balance sheet growth, margin expansion and improving costs, according to banking sector analysts.

While the underlying trend of a turnaround in growth and profitability is in its early stages, analysts say these are sustainable.

According to Abdulaziz Al Ghurair, chairman of the UAE Banks Federation and chief executive of Mashreq, the UAE banks are poised to post profit growth of around five per cent in the second half of 2017.

Of the five major banks to publish earnings in the second quarter, four have reported improved profits thanks to higher net interest income and lower impairments for some of them. "If you look at the bank results that have come in so far, collectively there is a growth of five per cent. Despite what you see all around us, if you compare it to the rest of the world, this is a fantastic result," he was quoted as saying.

UAE banks in general have reported resilient earnings in the second quarter. Earnings benefited from an improvement in credit cost, as well as modest loan growth. Margins were slightly compressed year on year, but have improved since the start of this year, thanks to two rate hikes in 2017. Banks continue to put a lid on cost growth, further supporting profitability, analysts said.

- issacjohn@khaleejtimes.com