Retail sector leads credit growth in July-September quarter.
Abu Dhabi: The gross credit in UAE rose 7.3 per cent in third quarter and seven per cent on year-on-year basis as at September 30 compared to eight per cent in 2014 as retail sector recorded double-digit growth in July-September quarter this year, according to latest data.
The report, issued by the Central Bank of the UAE, said asset classes including retail (10 per cent), government (8.7 per cent) and corporate (5.6 per cent) led the credit growth in the country. It further said year-to-date deposits grew by 1.1 per cent while year-on-year increase in deposits plunged to 1.6 per cent as of September from 11.1 per cent in 2014.
The central bank report said corporate deposits grew 6.8 per cent despite a 12.1 per cent decrease in government deposits this year. The proportion of non-resident deposits out of the total deposits remains stable at 11 per cent, slightly higher than the proportion of 10.8 per cent at the end of 2014.
Loans, deposits ratios
To capture the composite effects of changes in loans and deposits, the report said loan-to-deposit ratio has moved from 100.2 per cent in second quarter to 102.9 per cent in the third quarter. "The year-to-date loan-to-deposit ratio increased by 6.1 per cent," the report said.
The Lending To The Stable Resources Ratio, or LSRR, increased by 0.5 percentage points to the level of 88.1 per cent in July-September quarter implying that banks have been funding robust credit growth relying on other sources as the pool of available deposits has been growing more moderately.
The report further said excess reserves in the current account have declined by 68.2 per cent and banks' holdings of certificates of deposits fell by 2.1 per cent as of September ad compared to end of 2014. "The overall outlook regarding the soundness of the banking sector remains positive during this period due to an improved quality of the loan portfolio, while liquidity conditions tightened," the report said.
The improved quality of the loan portfolio of banks is evident by the fact that the ratio of non-performing loans (NPLs) remained flat at 6.3 per cent during second and third quarter - well below its peak at 8.6 per cent in the second quarter of 2014.
Meanwhile, bank specific provisions for NPLs increased from Dh70.6 billion at the end of June to Dh72.6 billion at the end of September thereby ensuring that NPLs remain fully provisioned.
Banks and financial institutions remain highly capitalised with the capital adequacy ratio of banks reaching 18.3 per cent (16.5 per cent for Tier1 capital) in second quarter of 2015, which is well above the regulatory requirements set by the central bank at 12 per cent and eight per cent, respectively. Meanwhile, liquid assets, which include reserve requirements, certificates of deposit held by banks at the central bank, in addition to zero-risk weighted government bonds and public sector debt and cash at banks as a ratio of total assets, remained roughly flat reaching 14.3 per cent at the end of June 2015 to 14.2 per cent at the end of September. Therefore, excess reserves banks hold at the central bank provided liquidity buffer to continue to extend their loan book.