Bank credit in the United Arab Emirates fell 0.2 percent in July versus June although deposits rose slightly as banks continued to exercise caution in lending, central bank data showed on Monday. UAE banks have also begun booking more specific provisions for non-performing loans (NPLs), the data showed, as more defaults come to light. Loans and advances fell to AED1,007.0 billion ($274.2 billion) on July 31 compared to AED1,009.0 billion in the previous month, the data showed. Bank deposits edged up 0.25 percent to AED964.1 billion in July versus AED961.7 billion in June. “It indicates that there has not yet been a resurgence in lending,” said Raj Madha, senior research analyst at EFG-Hermes. Specific provisions for NPLs rose nearly 6 percent to AED25.3 billion in July from June, whereas general provisions fell 13.5 percent to AED8.3 billion in the same period. “Banks are now taking money from general provisions and putting it into the specific provisions bucket because they are getting more visibility now,” said Deepak Tolani, analyst at Al Mal Capital. “The latest data shows banks are cautious and still not comfortable lending and are investing,” he said. Banks' total investments were up in July at AED117.4 billion versus AED115.3 billion in June. In recent months, several banks in the Gulf Arab region have said they have exposure to troubled conglomerates Saad Group and Ahmad Hamad Al-Gosaibi Group & Brothers (AHAB), which are facing a debt crisis. In the UAE, at least five banks, including Mashreq, National Bank of Abu Dhabi and Abu Dhabi Commercial Bank, have exposure to the firms, according to banking sources or the banks themselves. Certificates of Deposits (CDs) held by banks with the central bank in July also increased by 12.4 percent to AED65.5 billion compared to the previous month. But liquidity in the country's banking system improved as the gap between loans and deposits narrowed to AED42.9 billion in July versus AED47.3 billion in June. Banks in the UAE tightened the taps on lending as the sector experienced tight liquidity due to the credit crunch. The central bank governor earlier this year said credit growth is unlikely to grow beyond 10 percent this year.
