Financial experts are reporting on a liquidity crunch in
Dubai as the Emirates continue to manage a fast-growing national economy.
Data from an October monetary report cited in the Gulf News Journal on November 27 showed lower deposits and a higher volume of loan growth leading to
tightened liquidity that could affect borrowing.
“Banking sector liquidity has continued to tighten in 2016,
with stronger credit growth of 6 percent year to date than deposit growth (of) 2.1
percent,” Monica Malik, chief economist of Abu Dhabi Commercial Bank, said in a
press statement. “This ongoing tightening in liquidity continues to be
reflected in Emirates Interbank Offered Rates (EIBOR) rising further.”
Assessing the decrease in deposits, analysts cited
government sector revenues down 8.9 billion Dirhams.
Although government deposits were down 25.3 billion Dirhams
from June, they were still up 2 percent year-over-year.
Officials also cite “soft credit growth,” but strong demand
from borrowers. Experts say lower oil prices have driven greater demand in the
mining sector, while contractors need money for construction projects.
Nitisha Pagaria, senior analyst of Investment Research and
Analytics at Aranca, also sees the changes in liquidity pushing further
increases in EIBOR interest rates.
“Lower deposits and higher credit offtake by government and
related entities has caused tightening liquidity conditions in UAE money market
this time of the year.” Pagaria told the Gulf News Journal. “Liquidity tightening in the UAE banking sector could cause a further increase
in Emirates Interbank Offered Rate, resulting in rising funding costs
and declining bank margins.”
Pagaria said various financial enterprises in the region may not
feel the results in the same ways.
“Smaller private banks, which have relatively higher funding costs, could be hit harder than their larger peers,” Pagaria said. “However, seen from
a longer term financial stability perspective, the UAE banking sector has
adequate capital cushion, indicated by a capital adequacy ratio of 18.6 percent in
September 2016, and appears well positioned to handle market uncertainties.”
Also, she said, the national banking system has gotten good marks
from ratings agencies.
“Moody’s, a leading rating
agency, maintained a stable outlook for the UAE banking system in October 2016
based on their strong capital base and continued government support for this
sector.” Pagaria said.
