Comment: Impaired loans plague UAE banks

* username: rupertbu

Bank liquidity in the United Arab Emirates tightened significantly in late 2008 and into 2009 as the global economic crisis began to bite. The slowdown exacerbated a tightening that had been set in train earlier as speculative capital inflows went into reverse.

Over the past year, matters have improved but the liquidity problem has not disappeared totally. The gap between loans and deposits fell to $10bn at the end of last year but, at about 2 per cent, three-month interbank rates remain relatively high.

For many banks, loan/deposit ratios remain substantially above 100 per cent, access to international capital markets remains limited and expensive, and there is no sign of foreign depositors returning. While the ratio of advances to stable resources across the system as a whole – the main focus of UAE central bank attention – has fallen below 100 per cent, lending growth is nonetheless likely to remain weak this year.