UAE Central Bank cuts deposits

The UAE Central Bank slashed its deposits with foreign banks by nearly 45 per cent in the first eight months of 2010 but boosted investment in foreign securities by at least Dh45 billion, its figures have shown.

The cut in deposits followed a decline in the Central Bank’s interest income in 2009 and a large increase in its profits from foreign securities.

From around Dh85.6 billion at the end of 2009, the Central Bank’s deposits with banks abroad dipped to nearly Dh47.2 billion at the end of August, it said in its August statistics bulletin released this week.

The decline was offset by a sharp rise in the Central Bank’s investment in held-to-maturity foreign securities, usually a long term security that a company or individual holds until its date of maturity like three or five years. Profit in such tools is guaranteed as they are not affected by market swings.

From a negligible Dh37 million at the end of 2009, these investments by the Central Bank leaped to one of their highest levels of nearly Dh46.5 billion at the end of August 2010, according to the report.

The investments were also relatively high at around Dh29.5 billion at the end of 2008 before slumping through 2009 apparently after they matured.

The massive change in the Central Bank’s investment portfolio followed a steep drop in its income from interest and higher earnings from securities.

Its figures published early this year showed the fall in interest earnings depressed the Central Bank net profits by around 14.4 per cent in 2009 but its investment income more than doubled through the year.

From Dh3.722 billion in 2008, the Central Bank’s net income dipped to Dh3.184 billion in 2009. The decline was caused mainly by a plunge in interest income from a record Dh5.688 billion in 2008 to only Dh461 million in 2009.

But this was partly cushioned by a surge in investment income from about Dh1.539 billion to Dh3.844 billion in the same period.

Interest expenses plunged from around Dh3.188 billion in 2008 to Dh701 million in 2009 while net interest and investment income shrank from nearly Dh4.039 billion to Dh3.614 billion, the report showed.

The figures showed the Central Bank’s total assets shrank by around Dhtwo billion during August to Dh212.03 billion from Dh214.3 billion at the end of July. But they remained higher than their level of Dh203.9 billion at the end of 2009.

A breakdown showed banks in the UAE had sharply cut their utilization of a Dh50 billion emergency funding facility introduced by the Central Bank to offset a severe liquidity shortage in the banking system after the 2008 global fiscal crisis.

From Dh4.5 billion at the end of 2008, the funds owed by the banks to the Central Bank under that facility dipped to Dh2.3 billion at the end of 2009 and around Dh1.87 billion at the end of August.

On the liability side, deposits by UAE banks with the Central Bank swelled by around Dhtwo billion in the first eight months to Dh72.2 billion at the end of August. Certificates of deposits to banks remained as high as Dh72.3 billion at the end of August against Dh70.2 billion at the end of 2009. This indicates recovering demand by banks for CDs and an improvement in liquidity. The value of CDs stood at around Dh47.1 billion at the end of 2008.

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