Total money supply and liquidity in the economy improves year-on-year
Dubai: The UAE’s banking sector’s total assets increased by 1 per cent quarter-on-quarter to Dh3.2 trillion by end June, according to the Central Bank. In the 12 months to June, total assets of banks operating in the UAE increased by 0.6 per cent. Total credit increased 0.9 per cent quarter on quarter, to Dh1.76 trillion.
Total customers deposits with UAE banks rose 1.5 per cent, to Dh1.9 trillion. Resident deposits increased 0.3 per cent to Dh1.68 trillion, while non-resident deposits rose 10.9 per cent to Dh225.7 billion.
Improving credit growth was reflected in the overall money supply. Money Supply M1, which comprises currency in circulation outside banks (currency issued minus cash at banks) plus monetary deposits, increased by 2.7 per cent during Q2-2021.
Money supply measure as M2 that includes M1 plus resident time and savings deposits in dirham, plus resident deposits in foreign currencies increased by 0.1 per cent quarter on quarter during the second quarter of 2021. On an annual basis, there was a 2.1 per cent year on year increase in Money Supply M2, reaching Dh1.48 trillion at the end of the second quarter of 2021.
Money supply measured as M3 (M2 plus government deposits at banks and at the central bank) rose by 0.4 per cent quarter on quarter during the second quarter of 2021. On an annual basis, there was a 1.2 per cent year on year growth in M3.
Typically, the money supply M2 is considered the best indicator for the availability of liquidity in the economy, as it comprises currency in circulation outside banks, in addition to various deposits of all the resident sectors in dirham (except for the deposits of the government sector in the UAE). Central bank data showed that at the end of the second quarter of 2021, there was a quarter-on-quarter increase in M2.
UAE banks continued to score on capitalization levels with aggregate capital and reserves of banks increasing by 1.7 per cent quarter-on-quarter, reaching Dh384.5 billion. At the end of the second quarter, total capital adequacy ratio was 17.5 per cent, remaining well above the 13 per cent required. Capital adequacy ratio, including the 2.5 per cent capital conservation buffer requirement and the 8.5 per cent Tier1 Ratio, remain above compliance with Basel III guidelines.
Although the capital conservation buffer remains at 2.5 per cent, banks were allowed to tap into it up to a maximum of 60 per cent without supervisory consequences from March 15, 2020 as part of the COVID-19 regulatory forbearance measures. The domestic systemically important banks’ (D-SIBs) buffer remains the same, but they may use 100 per cent of their D-SIB buffer without supervisory consequences.
At the end of the second quarter of 2021, the central bank’s foreign assets increased 2.7 per cent, to Dh403.1 billion. This was mainly due to quarterly increase in foreign securities by 46 per cent, as well as reductions in current account balances and deposits with banks abroad by 10.6 per cent and in other foreign assets by 7.7 per cent.
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