The UAE banking system is "very solid with high liquidity", according to central bank governor Sultan bin Nasser Al Suwaidi, who has played down concerns about lending levels.
With the bulk of their business in retail banking, the emirate’s financial institutions are continuing to show signs of relatively high lending activity, dispelling concerns that they could become risk averse in the current economic climate, he added. In an interview with Oxford Business Group (OBG), Al Suwaidi said that although the central bank had issued advice urging banks to weigh up the risk element when giving loans, he had no major concerns that this advice could lead to the sector becoming too cautious.
“Institutions must look at risks carefully with regard to lending, but I am not overly concerned on this front because banks in the UAE are mainly retail commercial banks,” he said.
“This means the system benefits from the inherent strength of business banking, while also having the advantages associated with retail. Against this backdrop, UAE banks are very solid with high liquidity and a central bank which is supportive.”
With global economic recovery still in its early stages, Al Suwaidi said the central bank would continue with its two-pronged approach of ensuring that the banking system had sufficient liquidity, while exercising indirect control on credit expansion.
“I think these are the most important pillars,” he added.
Although the central bank would like to see the proportion of loans to deposits cut, Al Suwaidi was keen to stress that decisions on lending ultimately rested with individual banks.
“Only banks know the nature and the business of banking - the requirements of the individual borrowers. Therefore they are in the best position to judge this,” he said. “The UAE economy is open, dynamic and robust. Banks will decide what opportunities are right for them.”
Al Suwaidi also acknowledged that the conservative labelling of loan to deposit ratios adopted by the UAE banking system belied the real strength which characterised the sector.
“Nobody else in the world would label deposits like we do,” he said. “If you compare the UAE to other jurisdictions, you will find the definition is extremely conservative, very solid. It doesn’t initially reveal the strength that is inherent in it.”For all the latest UAE news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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