Banks need to boost deposits by Dh40bn: Al Suwaidi

 UAE banks need to attract nearly Dh40 billion in new deposits to expand their financial resources to cut rates and bridge a gap between loans and deposits, the Central Bank Governor was quoted on Thursday as saying.

Sultan bin Nasser Al Suwaidi said new provisioning regulations issued by the Central Bank for the country’s 23 national banks and 28 foreign units last week would not curb their lending potential, adding that a floor of 1.5 per cent on provisioning to total loans would have limited effects on the banks on the grounds the new rules gave banks a deadline of four years.

Quoted by the semi-official Arabic language daily Alittihad, Suwaidi said he believes UAE banks would be able to expand credit if they increase client deposits, excluding inter-bank deposits which account for about seven per cent.

“Banks need to increase these deposits by around Dh40bn, excluding inter-bank deposits….this increase is needed to bridge the gap with loans, put their house back in order, and push down inter-bank rates,” he said.

“I think this figure is not large considering the huge size of deposits with banks, estimated at more than Dh1 trillion.”

Suwaidi said the sharp rise in lending by banks was mostly during the boom years of 2007 and 2008, when credit growth exceeded 30 per cent.

“This has caused problems for banks at a later stage…but I think they have the chance now to put things right…I believe their position has improved and they are now close to overcoming those problems,” he said.

“Of course this will increase confidence with banks and support financial stability…for this reason, there will be no radical changes in regulations governing the functions of UAE banks in the near future.”

Suwaidi said a Dh40-billion increase in deposits with banks would help “bridge the existing gap” between the Emirates Inter-Bank Offered Rates (EIBOR) and London-Interbank Offered Rates (Libor), adding that the UAE one-year rates of 2.6 per cent  are currently around 1.9 per cent above Libor.

Suwaidi did not say how banks would be able to attract additional deposits of Dh40bn but many banks have been offering higher rates for client deposits. This has allied with better economic conditions and improved corporate earnings to boost deposits with the country’s 51 banks by around Dh31bn in the first nine months of 2010 to reach a record high of Dh1,013bn at the end of September, according to latest figures by the Central Bank.

Loans grew at a slower rate, rising by around Dh21 billion to peak at nearly Dh1,038bn at the end of September. The figures showed the loan-to-deposit ratio at the end of that month stood at 1.02.

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