Bank deposits in the UAE fell in May as a liquidity conditions continued to tighten, according to the latest data released by the Central Bank of the UAE.

Bank deposits fell 1.2 per cent in May, while loans and advances rose by just 0.2 per cent, in a sign that banks were still cautious about booking new deals, while deposit growth was so fragile. The loan-to-deposit rate rose to 95.5 per cent in May, from 94 per cent the previous month. Total bank assets also fell by almost 1 per cent.

The loan-to-deposit ratio had been falling since November 2011, but in April it started to creep back up again, indicating that liquidity conditions were getting worse. Farouk Soussa, chief economist for the Middle East at the US’ Citigroup, says that credit growth is slow as a result of “ongoing deleveraging in the UAE large corporate sector, continued reluctance to lend to SMEs, uncertainty with respect to future liquidity conditions, and weak demand for credit domestically given over-investment in the pre-crisis years”.

One banking executive says that measures to limit bank exposures to the government and state-related entities could further stunt loan growth in the future.

Analysts are expecting liquidity in the UAE to tighten further over the course of the year.