UAE banks slashed their deposits with the Central Bank by more than Dh60 billion in the first half to quench their thirst for liquidity following a sharp growth in domestic demand for credit, the Central Bank said yesterday.
The cut was reflected in a large decline in the Central Bank's foreign assets and a steep increase in real estate loans and other credits.
From Dh231.1bn at the end of 2007, the deposits of the UAE's 24 national banks and 28 foreign units with the Central Bank tumbled to about Dh170.6bn at the end of June, a drop of nearly Dh60.5bn, the Central Bank said in its bulletin for the second quarter.
Bankers said most of the withdrawn funds were in the form of certificates of deposit (CDs) issued by the Central Bank over the past year to stem swelling domestic liquidity amassed over five years of economic boom.
"Most of those deposits were maturing CDs and the banks needed them to meet their lending obligations, which have remained strong in the first half of this year," said an economist at an Abu Dhabi-based bank.
The withdrawal of funds was reflected in a large decline in Central Bank foreign assets from about Dh285.6bn to Dh194.7bn in the same period. Its total assets also shrank from Dh285.9bn to Dh236.6bn.
The bulk of the decline in the Central Bank's assets was in its deposits with banks abroad as they tumbled from Dh184bn to Dh89.4bn.
The figures showed the Central Bank's CDs balance dived from about Dh173.5bn to Dh116.9bn and the bulk of the withdrawn funds were by national banks as they are the main investors in Central Bank CDs.
The withdrawals by banks in the first half of the year have apparently failed to quench the thirst of UAE banks for cash, prompting the Central Bank to offer a Dh50bn lending facility.
Another offer of Dh70bn was announced by the Federal Government to ensure banks remain well equipped to extend credits.
The report showed there was a rapid growth in domestic credits in the first half as they jumped by about 24 per cent to Dh889.2bn at the end of June from Dh718bn at the end of 2007.
Real estate mortgage loans rocketed by about 50 per cent to record one of their highest growth rates in the country's history. From about Dh58.8bn at the end of 2007, they soared to Dh87.5bn at the end of June.
The report also showed there was an increase of about Dh10bn in government deposits with banks as they swelled from about Dh114.5bn at the end of last year to Dh124.5bn at the end of June.
"The increase in the government deposits with banks is another sign they enjoy a strong position," the economist said. – Emirates Business
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