By Daliah Merzaban
Central bank data shows further widening of mismatch between deposits and loans in oil exporter's banks.
Total deposits held at UAE banks fell 1.8 percent in January from the month earlier, further widening a mismatch between deposits and loans, central bank data showed on Sunday.
Total deposits at UAE banks fell to 905.7 billion dirhams ($246.6 billion) from 922.5 billion dirhams in December, the central bank said on its website.
Loans and advances climbed to 1.022 trillion dirhams versus 1.019 trillion dirhams in December, it said.
The mismatch between loans and deposits at UAE banks was "not appropriate" and the central bank was working on ways to bridge the gap, UAE Central Bank Governor Sultan Nasser Al Suweidi said last week. (Reuters)
Well, I thought I read somewhere last week that the liquidity situation was improving!!!
Liquidity 'could' still be improving despite lowered deposits. People could be drawing out money and using it for spending instead of taking credit/loans (due to higher interest rates now). And the rise in total lending 'can' also indicate that the liquidity in the market 'may' have increased somewhat. Liquidity for the banks may have been reduced however due to loaning and withdrawals and little interbank credit at good rates.
C'mon Bilal, how can liquidity in the system still improve if there was no external injection. Yes at a micro level with regard to some individuals / companies / banks the respective liquidity positions may have improved. But one person's gain is another persons loss and does not improve liquidity from a macro perspective. For that to happen a substantial external injection should come in; i.e. government injection and/or FDI. Then we would see the gap narrowing.
Liquidity can also increase by central bank reducing reserve limits for banks (no government injection needed!), or extending sovereign guarantees (no government injection needed again) on loans. There are two sides of the liquidity problem...low cash and high risk (counter-party), so if tomorrow the government decided to provide sovereign guarantee for certain infrastructural projects the banks (that are better capitalized) would start lending again...WIHTOUT necessarily asking for funds injection. My comment came as a reaction to yours assuming loan-depsit ration as criterion for liquidity measurement. Indeed, the loan/deposit ratio is a sign of concern (thats why i read this article!), but not the correct measure of gauging liquidity! Your second comment assumes that liquidity would increase with government injection/FDI. Not as long as the banks hold on to the cash. Recall the unused Aed 120 bln credit (or so) line extended to banks.