Dubai's banks could see a mini boom of up to AED6bn in deposits of 'hot money'
Dubai bank deposits are likely to increase by up to AED6bn ($1.6bn) this year as the regional unrest spurs investors to move ‘hot money’ to more stable markets, according to a new report.
A report by the think-tank Political Capital Policy Research and Consulting Institute claimed Dubai, and the UAE in general, was likely to witness “a mini-boom” as a result of the regional situation which was sparked in Tunisia in January and has spread across the Middle East and North Africa.
Despite around $160bn being wiped off the region’s main stock markets in the first few weeks of the unrest, the report forecast that Dubai is likely to benefit from an injection of capital into its banking sector this year.
“The UAE is seen as one of the region’s most stable and Dubai banks in particular will likely see an inflow of money. We estimate that deposits will increase by between eight and twelve percent in 2011.”
Latest figures from the UAE Central Bank show that in February around AED50.58bn ($13.7bn) was deposited in banks in the UAE. This means, according to the report predictions, banks could see an injection of up to AED6bn in cash into the system.
“Coupled with higher oil prices, local banks are expected to be able to substantially increase lending,” the report added.
However, the report highlighted the fact that this inflow is likely to be temporary as it will be categorised as ‘hot money’, which will eventually flow back out of the system once the unrest subsidies. “With the regional unrest likely to continue for several months, outward movement of capital is unlikely during 2011,” the report estimated.
Another benefit highlighted by the report was the fact that businesses, especially financial organisations, are likely to look to relocate to Dubai and it estimated that “between 30 and 50 per cent of business that relocate to Dubai will remain on permanent or semi-permanent basis.”
However, on Tuesday a Bahrain government official said no big financial institution is planning to leave Bahrain due to political unrest.
"We confirmed with them that the vast majority of banks are staying, they're all committed to Bahrain, they recognise the business in Bahrain," Boyd Winton, director for financial services at Bahrain's Economic Development Board (EDB) told a news conference.
Winton said only four financial services institutions had told the government they planned to leave. This included two firms who maintained only a representative office with one staff and an asset management company that he said had long planned to leave by the end of the year.
But bankers say lenders will avoid officially closing down their offices and instead will quietly move some staff to Dubai to prevent their relationships with the Bahraini government from being damaged.