UAE bank credit falls 0.2 percent in July

ABU DHABI Aug 24 (Reuters) - 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 1,007.0 billion dirhams ($274.2 billion) on July 31 compared to 1,009.0 billion dirhams in the previous month, the data showed.

Bank deposits edged up 0.25 percent to 964.1 billion dirhams in July versus 961.7 billion dirhams 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 25.3 billion dirhams in July from June, whereas general provisions fell 13.5 percent to 8.3 billion dirhams 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 117.4 billion dirhams versus 115.3 billion dirhams in June.

In recent months, several banks in the Gulf Arab region have said they have exposure to troubled Saudi 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 MASB.DU, National Bank of Abu Dhabi NBAD.AD and Abu Dhabi Commercial Bank ADCB.AD, have exposure to the Saudi 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 65.5 billion dirhams compared to the previous month.

But liquidity in the country's banking system improved as the gap between loans and deposits narrowed to 42.9 billion dirhams in July versus 47.3 billion dirhams 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. (Reporting by Stanley Carvalho; editing by Chris Pizzey)