Government boosts deposits with banks

The UAE Government boosted its deposits with local banks by nearly Dh28 billion in March after a sharp decline in private sector deposits because of lower interest rates and business slowdown, official statistics showed yesterday.

The Central Bank also reported a sharp fall in the deposits by foreign banks as many of them continued to repatriate capital they had invested in the UAE to take advantage of a possible appreciation of the local currency against the US dollar.

From about Dh180.3bn at the end of February, government deposits with UAE banks jumped to Dh208.2bn at the end of March, the Central Bank said in its January-March statistical bulletin.

Government deposits had slipped from about Dh190.9bn at the end of January and Dh198.2bn at the end of 2008.

They were estimated at Dh114.5bn at the end of 2007, nearly 54 per cent of their level in March 2009.

The surge in government deposits coincided with a decline in private sector deposits to about Dh316.3bn at the end of March from Dh349.05bn at the end of February, the Central Bank report showed.

The bulk of the decline was in the deposits of private business and industrial institutions as they slumped to Dh296.2bn from Dh331.4bn.

Deposits by private financial institutions edged up to about Dh18.1bn from Dh17.6bn and individual deposits to Dh239.1bn from Dh235.1bn.

"The main reason for the decline in private sector deposits in March was that interest rates were low in the first quarter because of liquidity shortages and many companies suffered from a business downturn due to the global financial crisis," an Abu Dhabi-based bank executive said. The figures showed the rise in government deposits more than offset the decline in those by the private sector as the total deposits with the UAE's 24 national banks and 28 foreign units gained about Dh25bn to reach Dh947.3bn at the end of March compared to Dh922.5bn at the end of February.

The report also showed foreign banks continued to slash their deposits with UAE banks as they dipped to about Dh155.4bn at the end of March from nearly Dh170.9bn at the end of February and Dh178.3bn at the end of January.

They were as high as Dh205.6bn at the end of 2007, when speculation mounted over a possible decision by the UAE and other Gulf oil producers to revalue their currencies against the US dollar within the monetary union plans.

Foreign banks began repatriating their funds, better known as hot money, in the second half of 2008 when the UAE made it clear it had no intention to quit the dollar for the time being.

Such a policy was further backed by the UAE's decision early this year to quit the GCC monetary union and a fresh announcement by the Central Bank that there were no plans to end the dollar peg.

Lower deposits by foreign banks depressed the total foreign liabilities of UAE banks to Dh273.6bn at March-end from Dh277.09bn at the end of February. They had climbed to a record Dh320.9bn at the end of 2007.

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