UAE credit, deposit growth eases in August

dubai - Money supplies in different measures dropped, reflecting an overall decline in economic activity

Credit and deposit growth in the UAE's banking sector eased in August amid a drop in money supply, according to the latest monetary data.
Data provided by the UAE Central Bank on Sunday shows that money supplies in different measures dropped in August, reflecting an overall decline in economic activity.

Gross credit - the amount of  credit that banks lend to companies, businessmen, individuals and institutions - decreased by one per cent to Dh1.57 trillion from Dh1.59 trillion.

Less money in circulation and drop in credit mean less money for people and businesses to spend, leading to lower demand for goods and services, resulting in higher supply compared to demand in August, analysts said.

During August, total bank deposits also decreased by Dh10 billion mainly due to Dh7.5 billion and Dh2.5billion reduction in resident deposits and non-resident deposits, respectively.

Gross bank assets, including bankers' acceptances, fell by 0.6 per cent to Dh2,617.9 billion from Dh2,632.7 billion.

In July, banking sector deposits in the UAE rose by a moderate 0.2 per cent month on month to Dh3.1 billion driven by the non-resident segment. 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.

M1, a measure of the money supply that includes all physical money, such as coins and notes, demand deposits and checking accounts, declined by 0.9 per cent to Dh493.2 billion from Dh497.5 billion.

M2, a measure of money supply that includes all the elements of M1 as well as savings deposits and other money market instruments such as fixed deposits which are less liquid, decreased by 1.5 per cent to Dh1,245.5 billion from Dh1,264.4 billion at the end of August 2017.

M3, a measure of money supply that includes all elements of M2 as well as large time deposits, institutional money market funds and other larger liquid assets, also decreased by 0.6 per cent to Dh1,450.6 billion from Dh1,459.1 billion in August.

The regulator said the fall in M1 was mainly due to a reduction of Dh5.4 billion in monetary deposits. The fall in M2 was brought about by a decreased M1, and a Dh14.6 billion decrease in quasi-monetary deposits. M3 mainly fell due to decreased M1 and M2, overshadowing a Dh10.4 billion increase in government deposits.

A rebound in government spending will be the key catalyst for a predicted recovery in the UAE's non-oil growth in 2018-20, economic analysts and credit rating agencies said.

Moody's Investor Service, affirming Aa2 stable outlook for the UAE, said it expects increased government spending to underpin growth in the country's non-oil economy. "After two years of spending cuts, we expect consolidated government spending to increase in 2017."

The ratings agency noted that the credit strengths of the UAE include assumed unconditional support from the government, with estimated assets under management exceeding total liabilities in the UAE's public sector.

"Superior infrastructure supporting diversification, very high per capita income and hydrocarbon reserves of more than 70 years at the current rate of production also support creditworthiness. In addition, the UAE's domestic politics have a track record of stability and the country has strong international relations," analysts at Moody's said.

- issacjohn@khaleejtimes.com