Banking & Finance

UAE bank deposits soar as higher rates attract savers

June 14, 2024, 5:25 AM

Bank customers in Dubai. Deposits by UAE residents eached AED2.4 trillion ($664 billion) as of March 31 — Bank customers in Dubai. Deposits by UAE residents reached AED2.4 trillion ($664 billion) as of March 31

Deposits up 16% compared to 2023
Private sector shows largest increase
US benchmark rate at 23-year high

Deposits at banks in the UAE have surged as account holders take advantage of higher interest rates to earn bigger returns on their savings, data from the country’s central bank shows.

Resident deposits totalled AED2.4 trillion ($664 billion) as of March 31, up 16 percent versus 12 months earlier.

Non-resident deposits – those held by people or entities not based in the UAE – grew 3.5 percent over the same period to AED221 billion.

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Private sector deposits expanded the fastest, rising 20.4 percent year on year to AED1.7 trillion, according to statistics published by the central bank this week.

The United States benchmark interest rate is at a 23-year high of 5.3 percent, up from near-zero in February 2022. UAE interest rates follow those of the US due to the dirham’s dollar peg.

This week, the Federal Reserve said only one rate cut was likely this year, despite having previously signalled it would make three.

Higher-for-longer rates have made holding cash savings more attractive to investors following about 15-years of near-zero returns on deposits. Central banks kept rates at historic lows in response to the global financial crisis and then the Covid-19 pandemic.

But surging inflation led monetary policymakers to change tack, hiking rates aggressively to try to slow cost-of-living increases.

Banks benefit from higher rates because lenders tend to re-price variable-rate loans faster than the yields they pay on customer savings.

The weighted average of the cost to banks for deposits was 2.6 percent in March, up 0.4 percentage points versus a year earlier. The average yield on lending climbed 0.5 percentage points over the same period to 6.8 percent.

Higher borrowing costs caused loan growth to lag that of deposits; gross credit increased 8 percent to AED2 trillion in the 12 months to March 31; government borrowing fell 12.8 percent to AED188 billion, but loans to government-related entities jumped 21.4 percent to AED298 billion.

Loans to the private sector expanded 6 percent to AED1.3 trillion over the same period.

Banks’ provisions are in decline despite higher interest rates, which tend to cause loan defaults to increase as some borrowers struggle to make repayments. The UAE banking sector’s provisions were AED37 billion on March 31, down 3.2 percent year on year.