The ratio of loans to deposits in the UAE banking sector is currently higher than the regulatory limit of 100 per cent, meaning that banks are unable to extend more loans without going even further beyond the regulatory limits.

Mary Nicola, economist at Standard Chartered, says: “The first and most important agenda priority for the UAE is to fix the liquidity problem so that the banks can start lending again. We estimate that the UAE needs to inject in excess of AED 100bn into the banking sector to bring the advances to deposit ratio below 100 per cent.”

Abu Dhabi recently put AED16bn of tier 1 capital into five Abu Dhabi banks, in an effort to shore up its financial system (MEED 4:2:09).