UAE loan growth accelerates in Q2 2021

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UAE total credit grew 0.9% quarter-on-quarter, reaching 1.76 trillion at the end of June 2021. On an annual basis, gross credit declined 1.2% year-to-date .
Image Credit: Ahmed Ramzan / Gulf News Archive

Dubai: Total banking sector assets in the United Arab Emirates grew 1% in the quarter, reaching 3.2 trillion dirhams at the end of the second quarter of 2021, according to the Central Bank of the United Arab Emirates (CBUAE).

Between June 2020 and June 2021, the total assets of banks operating in the UAE increased 0.6% year-on-year.

Total credit increased 0.9% quarter on quarter, reaching 1.76 trillion at the end of June 2021. On an annual basis, gross credit has declined 1.2% year-to-date.

At the end of the second quarter of 2021, the total deposits of resident and non-resident customers with UAE banks increased by 1.5% quarter-on-quarter, reaching 1.9 trillion dirhams.

Resident deposits increased 0.3 percent, reaching MAD 1.680 billion at the end of the second quarter of 2021. Non-resident deposits increased 10.9 percent quarter-on-quarter, reaching MAD 225.7 billion in dirhams at the end of June 2021. On an annual basis, residents’ deposits and non-resident deposits increased by 1 percent and 12.6 percent respectively.

Money supply and liquidity

The improvement in credit growth in the economy was reflected in the overall money supply. Money supply M1, which includes money in circulation outside banks (money issued minus liquidity in banks) plus monetary deposits, increased by 2.7% in the second quarter of 2021. On an annual basis, it there was 18.3% in M1.

The measure of money supply as M2 which includes M1 plus term deposits and savings of residents in dirhams, as well as deposits of residents in foreign currencies increased by 0.1% quarter on quarter during the second quarter 2021. On an annual basis, there was a 2.1% year-over-year decrease in M2 money supply increase, reaching MAD 1.48 trillion at the end of the second quarter of 2021.

Money supply measured by M3 (M2 plus government deposits with banks and central bank) increased by 0.4% quarter-on-quarter in the second quarter of 2021. On an annual basis, M3 recorded a 1.2% year-on-year growth. .

What is the capital adequacy ratio?

Capital adequacy ratios measure the amount of a bank’s capital expressed as a percentage of its risk-weighted exposures. A high capital ratio provides protection for depositors and promotes the stability and efficiency of an economy’s financial system. As of December 2017, UAE banks follow Basel III principles to calculate capital adequacy ratios in accordance with guidelines issued by the central bank.

Typically, M2 money supply is considered the best indicator of the availability of liquidity in the economy, as it includes the currency in circulation outside banks, in addition to the various deposits of all sectors resident in dirham, except public sector deposits in the United Arab Emirates. Data from the central bank showed that at the end of the second quarter of 2021, there had been a quarterly increase in M2.

Capital and reserves

UAE banks continued to score points on overall capitalization levels, with banks’ aggregate capital and reserves increasing 1.7% quarter-on-quarter, reaching Dh384.5 billion at the end of the second quarter 2021.

At the end of the second quarter of 2021, the total capital adequacy ratio stood at 17.5%, remaining well above 13%. The capital adequacy ratio, including the 2.5% capital conservation buffer requirement and 8.5% Tier1 ratio, remained well above central bank regulations in accordance with Basel III guidelines.

Although the capital conservation buffer remains at 2.5%, banks are authorized to draw on it up to a maximum of 60% without prudential consequences, as of March 15, 2020, as part of the abstention measures. COVID regulatory.

The cushion of national systemically important banks (D-SIBs) remains the same; however, they can use 100% of their D-SIB buffer without prudential consequences, as of March 15, 2020.

Foreign Central Bank Assets

At the end of the second quarter of 2021, the external assets of the central bank increased by 2.7%, reaching 403.1 billion dirhams. This increase is mainly due to a quarterly increase in foreign securities of 46% (a quarterly increase of Dh41.4 billion), reductions in current account balances and deposits with banks abroad of 10.6% (a quarterly decrease of Dh27.3 billion) and in other foreign assets by 7.7 percent.

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