Despite an increase in interest rates, UAE banks record credit growth

UAE - Despite rising interest rates, credit growth in the banking sector of the United Arab Emirates, a crucial measure of overall economic growth, soared to approximately Dh2.0 trillion in the first quarter, demonstrating the strong trend in the business sector.

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Gross credit increased by 0.9% quarter over quarter (q-o-q) to Dh1.895.8 trillion, while customer deposits increased by 3.8% quarterly and 14.9% annually to Dh2,306.0 billion. By the end of the first quarter of 2023, the total assets of banks doing business in the nation had grown by 2.6% year over year, reaching Dh3.7647 trillion, according to a report from the Central Bank of the UAE (CBUAE).

Consumers and businesses can borrow more money and spend more when credit is available to them. An increase in investments and consumption generates jobs and boosts revenue and profit. While consumer credit shocks are linked to private consumption, corporate credit shocks have an impact on GDP growth primarily through investment.

From 2007 through 2023, the UAE's interest rate averaged 1.49 percent, with record highs of 5.15 percent in May 2023 and 0.15 percent in July 2021.

The CBUAE report offers information about the banking industry, including how many banks are present in the UAE. There were 22 locally incorporated banks by the end of the first quarter of 2023, but the number of their branches fell to 494. The number of cash offices remained unchanged at 21, while the number of electronic banking service units rose to 47.

By the end of the first quarter, the capital adequacy ratios of banks operating in the UAE increased by 0.5% q-o-q, reaching Dh430.7 billion, well above the mandated requirements. This ratio measures the amount of capital in relation to risk-weighted exposures.

The Central Bank's foreign assets climbed by 8.8% quarter over quarter in the first quarter, totaling Dh537.4 billion. The research also emphasises the state of the financial markets, with the Dubai Financial Market Index rising by 1.6% q-o-q during the same period while the Abu Dhabi Financial Market Index fell by 6.7% q-o-q.

Non-resident deposits rose by 0.4 percent q-o-q to total Dh213.4 billion, while resident deposits expanded by 4.1% q-o-q to reach Dh2.093 trillion.

Sharia-compliant banks' gross assets increased significantly as well, reaching 650 billion dirhams by the end of the first quarter of 2023, a gain of 7.31 percent annually, or roughly 44.3 billion dirhams, from 605.7 billion in March 2022.

According to data from the apex bank, loan from Islamic banks increased to Dh400.2 billion at the end of March 2023, representing a 2.51 percent annual growth compared to Dh390.4 billion in March 2022 and a 0.91 percent month-over-month increase from Dh396.6 billion in February.

From roughly Dh427 billion in March 2022 to Dh453.4 billion in March 2023, an increase of 6.2 percent annually, was seen in deposits held by Islamic banks. By the end of March 2022, Islamic banks had invested a total of Dh111.5 billion.

The conventional banks in the UAE had total assets of Dh3.115 trillion as of this time, an increase of 14.1% from Dh2.73 trillion in March 2022.

By the end of March 2023, these banks controlled around 82.7% of the Dh3.765 trillion in total assets of the UAE's banking system, while Islamic lenders held 17.3%.

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