15
ANNUAL REPORT 2015
BANKING & MONETARY DEVELOPMENTS
worries about another rate increase by the US
Federal Reserve, fuelled bankers’ expectations
of a softening in lending appetite. The net
balance measure in aggregate dropped to
-8.1 in confidence in December and staying
in negative territory for the first time. This
can be attributed to a tightening of credit
standards, as banks demonstrated caution
when lending to SMEs. Demand for credit
across corporates and small businesses
contracted across all emirates in December.
Resolution of legacy problem loans has
and will continue to moderate new problem
loan formation.
Demand for personal loans and housing loans
also continues to contract across the UAE, with
personal loans showing a negative measure by
the end of the year for the first time since the
survey was published in Q4 2014 of -6.2.
The loan-to-deposit ratio ended 2015 at 101
per cent, up from 97 per cent at end-2014 but
down from a peak of 103 per cent in Q3 2015.
However, despite tightening credit conditions
banks were able to use the improved quality
of their loans portfolios to increase credit at a
modest pace thus continuing to provide the non-
energy sectors of the economy with financing.
Money Supply
The money supply aggregates M1, M2 and M3
all registered growth in 2015, of 4.8 per cent,
5.5 per cent and 2.4 per cent respectively
Money supply M1, which comprises currency
in circulation outside banks (currency issued
and cash at banks) plus monetary deposits,
increased by 4.8 per cent, reaching AED
457.0 billion.
Money supply M2 (M1 plus quasi monetary
deposits (saving accounts, time deposits, and
all deposits in foreign currencies) increased
by 5.5 per cent reaching AED 1,204.4 billion.
Generally, 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 except the Government sector in the UAE.
Whilemoney supplyM3 (M2plusGovernment
deposits at banks and at the Central Bank) also
increased, by 2.4 per cent to reach AED 1,363.6
billion, it is notable that the increase shown was
