Deposits in the UAE banking system rise as the European Central Bank takes action
Bank deposits flooded into the Emirates in the first quarter of the year, reducing stress on the banking system.
During the first three months of this year, individuals, banks and companies in the UAE deposited AED 39.67 bn ($10.8 billion) of funds with international banks reporting data to the Bank for International Settlements (BIS).
The rise in deposits to $83.7bn reflects a 14.9 per cent increase compared with the previous quarter. A third of the influx represents interbank deposits. During the first quarter of the year, banks received a large amount of deposits from Saudi Arabia and Qatar, the BIS report added.
The surge in deposits follows action taken by the European Central Bank to provide emergency short-term funding to the continent's banking sector, known as the long-term refinancing operations or LTRO.
Beginning in December, the ECB pumped more than AED 4.82 trillion (€1 tn) of funding into the European banking system in an effort to arrest capital flight then taking place as investors feared a break-up of the euro zone.
The BIS warned, however, recent stimulus efforts "should not make us complacent" to the decelerating world economy despite pledges this weekend from central banks to pump unlimited amounts of fresh funding into languid western economies, pointing to the cooling Asia-Pacific region. "This could be a welcome moderation but, even so, it means that the emerging market economies won't support global growth as much as they have done in recent years," the BIS said.
Between April and November last year, more than AED 74.5 billion of deposits were whisked out of the Emirates' banking system, according to Central Bank data.
At the time, analysts attributed this to European banks' withdrawal of funding to shore up capital buffers, alongside Indian expats who sent money home to take advantage of the rupee's weakness.
Throughout the first quarter, other countries in the Arabian Gulf also reported a sharp increase in deposits.
Deposits from Qatar at international banks rose $10.4bn to $45.3bn, a 30.6 per cent rise compared with the preceding quarter. Lending rose 14.6 per cent during the same period to $72.1bn.
Meanwhile, deposits from Saudi Arabia rose 14.9 per cent to $126.8bn during the first quarter and from Kuwait by 8.5 per cent during the same period. Bahrain also reported a boost to interbank funding in spite of simmering unrest and a withdrawal of international banks, with deposits increasing 13.4 per cent.
However, despite the increased availability of funding, loans to UAE companies are almost unchanged since the beginning of the year, the data show.
- Giving up on the EU? Greece, Cyprus look to GCC investors
- Turkish whistleblower: government can hand over any bank to state fund
- Why Israelis are rushing to empty out their Swiss bank accounts
- Wealth in the land of Arab Spring: Egypt's top ten richest men in 2014
- Will the US dollar peg protect GCC currencies?