Dubai: Aggregate UAE banking sector data for the first nine months of the Central Bank of the UAE (CBUAE) showed banks remain fundamentally strong with resilient growth in assets and liabilities.
While banks are expected to report FY2021 results starting next week, central bank data points to an improving operating environment supporting balance sheet growth, improved asset quality, profitability and financing.
Data for the third quarter of 2021 showed that total bank deposits increased on both an annual and quarterly basis. However, gross credit contracted on an annual basis, but the pace of decline slowed down with moderate growth in the quarter.
According to the CBUAE, overall financial soundness indicators have remained robust over this period, thanks to the gradual recovery of the economy. The CBUAE reaffirmed during the quarter its continued commitment to support economic recovery through the Targeted Economic Support Program (TESS) and the phasing out of emergency measures introduced in response to the pandemic.
Deposits and loans
Total assets edged down in the third quarter by 0.2 percent year-on-year, while gross bank lending declined 1.6 percent year-on-year. This is largely attributed to a contraction in the business loan portfolio compared to a year ago.
On a quarterly basis, credit growth rebounded in the third quarter of 2021, in particular for credit to the domestic private sector which recovered slightly by 0.4% quarter on quarter.
Total bank deposits improved by 1.8% in the third quarter despite a decline in government deposits. Private sector deposits increased 4.7% year-on-year, as non-resident deposits jumped 27.1%.
About 80% of deposits at the end of the third quarter of 2021 were in conventional banks and the remaining 20% in Islamic banks. In addition, the share of deposits from domestic and foreign banks accounted for 88.2 percent and 11.8 percent, respectively.
Key indicators of financial soundness such as the liquidity, funding and capital adequacy of the UAE banking sector indicate healthy trends for balance sheets against a backdrop of modest credit growth.
The rate of advances on stable resources (ASRR) of the banking system fell from 77.7% at the end of June 2021 to 77.9% at the end of September 2021, indicating that the structural financing of the banking sector has remained solid.
The loan-to-deposit (LTD) ratio for the entire banking system declined to 91.5% at the end of the third quarter, slightly below 92.7% at the end of the previous quarter, due to higher growth of deposits compared to loans during the period.
Total liquid assets of banks at the end of the third quarter of 2021 stood at MAD 485.2 billion, up 8.2% in the third quarter of 2021. The UAE banking system has remained well capitalized, with an average capital adequacy ratio (CAR) of 17.7 percent.
Personal remittances on the rise
In the third quarter of 2021, outgoing personal remittances increased 9.2% or 3.7 billion dirhams year-on-year. Remittances from banks increased by 5 billion dirhams or 29.2 percent, while remittances through bureaux de change fell by 1.3 billion dirhams or 5.1 percent.
The top five countries for outgoing personal remittances in the second quarter were India, Pakistan, the United States, the United Kingdom and the Philippines, accounting for 26 percent and 12.3 percent respectively for top two, while the bottom three accounted for 6.6 percent. one hundred each.