Bank loans in the UAE grew by just 0.4 per cent in March, according to the latest data from the Central Bank of the UAE.

The figures show that lending growth is still slow, which could impact the pace of the economic recovery in the country.

According the Central Bank there is still a AED55bn ($15bn) funding gap in the UAE banking sector because loans exceed deposits. The Central Bank has asked banks to ensure that the ratio of loans to deposits is managed down to 100 per cent to avoid banks becoming overleveraged.

However, while banks are rationing credit they extend, as evidenced by the low loan growth figures, deposits are not growing fast enough to close the gap quickly. Deposit growth in March rose by just 0.9 per cent.

The gap between loans and deposits peaked in January 2009, when the loan to deposit ratio was 110 per cent. The gap has been narrowing progressively, and fell to 104 per cent, or AED90bn, at the end of September 2009.