Low price ripples through to UAE banks with deposits down

Deposits continued to shrink at UAE banks in the third quarter in the latest sign that the low oil price has started to be felt by the banking sector.

Deposits shrank 0.45 per cent in the three months to September, to Dh1.43 billion, down from Dh1.44bn in June, according to Central Bank data published yesterday. That is the second consecutive quarter of falling deposits.

On an annualised basis, deposits grew just 1.6 per cent in the year to September. That is a marked change from even nine months ago, when UAE banks were growing deposits at an annualised rate of 11.1 per cent.

“This tells you that hydrocarbon revenues going down has had an impact on bank deposits,” said Sanyalaksna Manibhandu, senior analyst at National Bank of Abu Dhabi. “When revenue goes down at the fiscal level and governments are still spending money, they still have to plug the deficit somehow. So government-related entities start to take out their deposits. That’s why we’re seeing low or negative growth in deposits.”

National Bank of Abu Dhabi government deposits fell by Dh48bn in the year to September, the bank said in a conference call with analysts last week.

The decline in the oil price from $110 in June 2014 to $48 yesterday has hit UAE government revenues, leading to projections that the country will run a fiscal deficit of 5.5 per cent this year, according to IMF estimates.

Credit growth continued to slow in the third quarter, growing 2.1 per cent, down from 2.5 per cent at the end of June. Credit grew at 7 per cent in the 12 months to September – slower than the 8.8 per cent growth recorded in the 12 months to June.

But credit growth to government-related entities continued to advance, increasing 13.2 per cent year-on-year. That is because the UAE is continuing to spend on infrastructure projects, even as the already low oil price declines.

“The government has ongoing projects that need finance, and GREs need working capital,” Mr Manibhandu said. Only if oil prices remain low several years from now will the UAE experience declining bank deposits and negative credit growth for GREs.

Asset growth also slowed in the third quarter, with assets increasing 0.1 per cent in the three months to September.


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