UAE banks fight for deposits in a race to meet regulatory requirements

04 January 2016

Abu Dhabi’s FGB secures a $1bn domestic deposit from Emirates Airlines while NBAD looks overseas for deposits

 Abu Dhabi’s First Gulf Bank (FGB) has secured a $1bn deposit from Dubai government-controlled Emirates Airlines as lenders in the UAE scrambled to boost deposits before end of 2015 to comply with the UAE Central Bank’s requirements.

National Bank of Abu Dhabi (NBAD), the country’s largest lender by assets on the other hand, has avoided the domestic race for expensive short term solutions and has looked overseas for deposits.

FGB was among several UAE lenders which competed for Emirates’ deposit, two bankers familiar with the matter told MEED.

The UAE Central Bank has asked lenders to maintain permissible limit in various ratios such as eligible liquid asset ratio, the advances to stable resources ratio and loan to deposit ratio. These ratios are indicators of general health of the banking system.

The Lenders that were trying to comply with the regulatory limits actively sought short-term corporate deposits between six months to one year maturity, according to the bankers.

“There is tension in the market and the banks in the last six-to-eight weeks have very aggressively pursued deposits,’’ said one of the bankers who asked not to be named.

Emirates Airlines keeps nine months of working capital in cash for contingencies and it invites UAE banks to offer interest rates for placing deposits with them. “What happens at Emirates is that there is effectively a bidding war. They highest bidder takes the deposit,’’ said the banker.

Spokeswomen for FGB and Emirates declined to comment.

FGB was not the only lender, which aggressively pursued the short-term deposits. United Arab Bank (UAB), Commercial Bank International (CBI) and Emirates Islamic were also active on that front, the banker pointed out.

“We are very comfortable with our liquidity position and ratios, which are in line with best market practices,” a CBI spokesman said. Spokeswomen for both UAB and Emirates Islamic didn’t respond to requests for comments.

NBAD, on the other, said that its strategy to levering its name and strength of its franchise overseas has helped it offset the impact of falling government and public sector deposits on the back of slumping oil prices, according to Steve Jordan, NBAD’s group treasurer.

Some of the banks in the UAE may require liquidity to strengthen balance sheets in the “new normal’’ environment and to meet regulatory requirements. This has forced them to compete aggressively and pay up even for short term deposits, Jordan explained in an emailed statement to MEED last week. “NBAD has no intentions to participate in this pure pricing based competition and did not do so even in the times of post-2008 financial crisis,’’ he said.

Liquidity conditions are getting tighter for the banks in the UAE. The price of crude, – sale of which is the major source of income for the oil-exporting UAE, especially, Abu Dhabi – have dropped to 11-year low in recent weeks. The government, in order to meet the shortfalls, has been withdrawing funds from the local banks.

NBAD was among the worst hit. The government deposits at the bank dropped by $13bn. The bank’s chief executive Alex Thursby in October said that the UAE banking system as a whole has lost about $15bn in government deposits from September 2014 to September 2015.

“We have been more active and focused on raising deposits from our international network than before. This has helped the bank to offset some of the outflows of the government and public sector deposits,’’ according to Jordan.

The overall deposit growth in the UAE has slowed down in the last 12 months to just 2 per cent. The private sector deposits grew by 5.4 per cent while the government sector experienced a negative growth rate of 6.3 per cent year-to-date in November, according to Monthly Outlook published on Central Bank’s website in December.

Loans rose by 8.1 per cent in the last 12 months by the end of November. Government-related loans rose 10 per cent year-to-date. However, this sector represents just 11 per cent of the total loans outstanding. The private sector accounted for almost 70 of the total loan volume, which grew by 8.3 per cent, according to the Central Bank.


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