Abu Dhabi's NBAD Says Government Deposits Slump $13 Billion

  • Government deposits fall after decrease in prices for crude
  • Bank sees `new normal' of lower crude and difficult conditions

National Bank of Abu Dhabi, 70 percent owned by the oil-rich emirate, said government deposits slumped by more than $13 billion in the past year after the drop in crude.

The United Arab Emirates’ banking sector has lost 56 billion dirhams ($15.25 billion) in government deposits since September last year, of which National Bank of Abu Dhabi’s share has been 48 billion dirhams, Chief Executive Officer Alex Thursby said on a conference call Wednesday. Deposits fell to 31.2 billion dirhams last month from 69.6 billion at the end of December, according to a company statement.

The decline in oil prices is forcing countries from Saudi Arabia to the U.A.E. to draw down reserves to maintain spending. Economic growth in the U.A.E., the second-biggest Arab economy, may slow to 3.5 percent this year, from 4.6 percent in 2014, according to the median estimate of nine economists compiled by Bloomberg, while oil has fallen about 45 percent in the past year. Loan growth in the U.A.E. is also showing signs of slowing and there has been a rise in the number of small and medium-sized company owners leaving the country without paying their loans, Dubai-based Emirates NBD PJSC said Tuesday.

“We are living in a ‘new normal’ because the system is subject to an oil price that is considerably lower than it was before,” Thursby said on the call. “This is not a U.A.E. problem. This is a Gulf effect, so I do see liquidity being tighter for some longer period of time."

Tighter Liquidity

Gulf banks, which had battled to extend loans while oil averaged more than $100 a barrel, are seeing surplus cash dry up because of the slump in crude. The three month Emirates Interbank Offered Rate, a benchmark used to price some loans, has climbed 17 basis points since January to 0.85 percent on Wednesday, the highest in two years, according to central bank data on Bloomberg. Tighter liquidity is dampening loan growth in the U.A.E. and the six countries of the Gulf Cooperation Council, Emirates NBD said.

Oil and gas accounted for 65 percent of total government revenue in the U.A.E.
in 2014, according to the IMF. Still, the slump in prices is not causing panic in the country, Energy Minister Suhail Al Mazrouei said at a conference Wednesday in Abu Dhabi. Major projects in the emirate will continue, including the new Midfield Terminal at Abu Dhabi International Airport and a branch of the Louvre museum, Ali Al Mansoori, chairman of Abu Dhabi’s Department of Economic Development, told Bloomberg earlier this month.

“It is a gift to the world that oil has dropped to $50,” he said. “Would we like for oil to stay at $50? Absolutely not. We would like oil to go to $70, $80, but beyond that I think it would hurt the economic growth.”

Third quarter profit at NBAD was 1.3 billion dirhams, a 3 percent decline compared to a year earlier and missing expectations for profit of 1.43 billion, the mean estimate of five analysts. Net interest income rose to 1.83 billion dirhams, while non-interest income fell to 763 million dirhams, the bank said. It also bought 3 billion dirhams of Royal Bank of Scotland’s India loan book, Thursby said on the conference call.

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