UAE consumers save less, borrow more in second quarter

Reuters/Ben Job

• Loan-to-deposit ratio up to 76.3%
• UAE central bank lifted base rate to 5.40%
• Deposit growth only 0.8%

UAE consumers saved less and borrowed more in the second quarter of the year, data from the country’s top 10 banks revealed.

The overall loan-to-deposit ratio (LDR) rose from 74.9 percent in Q1 2023 to 76.3 percent in Q2, recording the first increase after four successive quarterly declines, according to the latest quarterly UAE Banking Pulse report, published by professional services firm Alvarez & Marsal (A&M).

The LDR is used to assess a bank’s liquidity by comparing its total loans with total deposits for the same period.

• UAE bank customers shift cash to chase higher interest
• Dubai’s Tarabut points way for open banking in GCC
• ‘Hi, this is your bank…’ Inside the war on payment fraud

Century Financial chief investment officer Vijay Valecha told AGBI the higher demand for loans could be attributed to the UAE’s improved non-oil economic growth outlook, which is projected by the World Bank to rise by 4.8 percent in 2023.

“This may have enhanced consumer and business confidence and spending, leading to more borrowing for consumption and investment purposes,” he said.

The US Federal Reserve increased interest rates in July for the 11th time in its last 12 meetings, setting the benchmark overnight interest rate in the 5.25-5.50 percent range, indicating another possible increase.

The Central Bank of the UAE followed suit, lifting its base rate on the overnight deposit facility to 5.40 percent from 5.15 percent.

Despite this, deposit growth was at its lowest in the last four quarters, increasing by a modest 0.8 percent quarter on quarter. 

Dubai Islamic Bank reported the highest quarterly increase in deposits by 6.2 percent to AED211 billion ($57.4 billion). 

However, First Abu Dhabi Bank and Commercial Bank of Dubai both reported declines of 4.6 percent and 0.5 percent respectively.

Casas – current account savings accounts – were up 3.4 percent from Q1. These allow holders to deposit and withdraw cash frequently and usually offer lower interest rates. 

Time deposit accounts, which offer higher rates in return for leaving money deposited with the bank for an agreed extended time period, were down 2.3 percent for the top 10 lenders compared with the first quarter.

They accounted for 42.1 percent of all deposits in Q2, down from 43.5 percent in the previous quarter.

Valecha added that savers may also have preferred other investments, such as stocks, bonds or property “that could give them higher returns or more liquidity”.

In Dubai’s real estate sector, the number of residential deals signed in June 2023 was 18.8 percent higher than the previous year, while off-plan sales increased by 44.9 percent.

A&M’s UAE Banking Pulse for Q2 2023 found that banks’ total operating income increased by 3.2 percent quarter-on-quarter, driven by non-interest income which saw a quarterly uptick of 7.7 percent.

Asad Ahmed, A&M managing director and head of Middle East Financial Services, said: “UAE banks continue to stand on firm financial ground and are poised to navigate through the broader macroeconomic landscape.”