“It is hard to forecast exactly what will happen, but conventional wisdom tells us that it is probably going to take approximately a year and a half before there is enough confidence and stability to see a real reversal in terms of capital flows, so we expect the rise in deposits to be sticky for the medium term,” said Crossman. Until then, deposits at UAE banks are expected to continue to grow strongly, buoyed by high oil prices, with Cowan projecting growth in the range of 5 to 10 percent in 2011 across the sector. Too much cash Some experts even believe that deposits are slowly becoming more of an accounting liability given meager expectations for loan growth, and may not be as welcome anymore, at least not at current rates. “There is no more competition for deposits. On the contrary, banks are now able to turn away deposits because we have reached the situation of excess liquidity,” said Rasmala's MENA banking analyst, Raj Madha. But others argue that the sector is not yet well capitalized. Varun Sridhar, senior banking consultant at Value Partners said, “There is marginal liquidity improvement, but banks are still ready to pay 4 percent for deposits, implying that they are not so liquid.” Regardless of whether the sector is already well capitalized, or will be later in the year, strong deposit flows mean banks are looking for channels to deploy those funds. “I certainly believe that banks have an appetite to lend, though I don't think it would be prudent to return to pre-crisis levels. At HSBC we are lending to a broad section of customers, in line with the rest of the market,” said Crossman.
