(MENAFN - Khaleej Times) Banks and financial institutions in the country sanctioned loans more generously to their credit-hungry customers as they recorded strong growth in deposits during the first seven months of this year.
According to the latest data released by the Central Bank of the UAE on Tuesday, lending grew 1.9 per cent and bank deposits increased 4.2 per cent during January-July 2012 period. Interest rates remained at record lows as the central bank mirrors US rates in the context of the fixed exchange rate regime.
"Deposits rose 0.7 per cent to Dh1.114 trillion in July while total bank loans and advances increased 0.1 per cent to Dh 1.091 trillion. However, the bank assets decreased by 0.5 per cent to Dh1.724 trillion at the end of July," the central bank data shows.
According to a NBAD report released on Tuesday, credit growth was seen in five out of total 12 sectors of economy in January-May 2012 period. Loans to these sectors were up by 6.6 billion including personal loans for consumption accounted at 40 per cent, government 37 per cent, other 15.9 per cent, transport/communication 6.8 per cent and manufacturing 0.15 per cent.
According to Dr Giyas Gokkent, group chief economist at National Bank of Abu Dhabi (NBAD), lending rates have come down gradually as liquidity in the system improved and banking sector competition intensified.
"Central bank of UAE scrutinised interbank rates that had been relatively high and these subsequently declined somewhat and then remained steady," he said.
"Interbank rates have come down further since June 23 from 1.53 per cent for M3 where they had been for almost a year to about 1.3 per cent by September. There still appears more room for dirham interbank rates to come down," Gokkent said.
He said net loans in the UAE were up by 3.2 per cent year-on-year and 1.8 per cent in the first half of the year due to a number of factors, but the heart of the issue is the need for the system to digest rapid loan growth of previous years and for imbalances in the economy to be gradually worked out," he said.
By Haseeb Haider