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The Financial Sector Performance Index for the Emirate of Abu Dhabi achieves marked improvement in line with rising economic performance for the Emirate

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The Financial Sector Performance Index for the Emirate of Abu Dhabi achieves marked improvement in line with rising economic performance for the Emirate

Monday, April 15, 2013 News
The Financial Sector Performance General Index gained marked improvement in 2012, particularly during the first quarter of 2012 as it registered 104.5 points, the highest since the second quarter of 2011, rising high compared to the last quarter of 2011 when it registered 99.4 points. The index dropped in the second quarter of the year, affected by range of variables to register 99.3 points, just shy of the levels achieved at the end of 2011, to revert once again and improve gradually to score 101.5 points during the third quarter of 2012.The Financial Sector Performance Index results released by the Studies Directorate of Abu Dhabi Department of Economic Development, revealed the improvement gained by indicator in 2012 as a result of the enhanced performance of a number of sub indicators, furthered by a drop in the rate of inflation, the ratio of loans to deposits, the ratio of money supply to foreign reserves and the ratio of domestic credit volume to GDP, in addition to the improved performance of other subsidiary indicators, with positive impact, such as the significant increase in price of oil, the rise growth rate capital and reserves, the performance of Abu Dhabi Securities market and the high capital adequacy of banks. The index results confirmed that the financial sector in the Emirate of Abu Dhabi had become as stable as it was before the financial crisis, despite global shocks and upheavals, in line with the Emirate's economic performance in 2012.This was positively supported by the expected growth of GDP added by non-oil activities, in addition to the considerable rise in oil output during the same year, with increased production of oil and the rising world oil prices.The financial sector performance index 2012, in general index reflected the vulnerability of domestic financial sector to global economic conditions, emphasizing the extent of integration of this vital sector in the world economy. The general index rose during the first quarter of 2012, at a time when hopes rose over the global economic recovery in the light of a number of positive indicators in major global economies, to which global financial markets responded and achieved substantial gains.Those indicators have blinked and turned with the wave of optimism that prevailed during the first quarter of last year to a state of pessimism about the future of the world economy, in view of the challenges faced by the world's major economies, especially the problem of sovereign debt in a number of Euro zone economies, when many major international institutions reduced their expectations about future economic growth in a number of the largest economies. Eventually this had an impact on a number of major global stock markets, reflecting the deteriorating situation in those economies. In 2012 the financial sector in U.A.E experienced a number of developments, Which have had a significant impact on its performance, importantly, was the growth of money supply by 4.4% in 2012, rising to 6.6% in the first quarter, compared to the last quarter of 2011 reaching AED 880.4 billion; rising by 5.5% annum compared to the same period in 2011.In the second quarter of 2012, money supply growth declined by 6.1% compared to the first quarter to reach AED 827.1 billion, decreased by 2.9% per year, compared to the second quarter of 2011. The volume of money supply registered an increase to mark AED 845.5 billion in the third quarter of 2012, and continued to rise, reaching AED 862.4 billion at the end of the fourth quarter of 2012.The financial performance index revealed a 7.8% growth in assets of banks operating in the country during the year as it rose by 4.77 % in the first quarter to AED 1741.4 billion, compared to the last quarter of 2011, rising by 2.7% annually compared to the first quarter of 2011. At the end of the second quarter, the total assets of banks operating in the country by dropped by 0.5% compared to the first quarter, to amount to AED1732.7 billion, to resume rising again at the end of the third quarter of 2012 to AED1763.9 billion. The total bank assets continued to increase as it amounted to AED 1791.6 billion at the end of the fourth quarter of 2012. The capital adequacy ratio of banks operating in the UAE increased by 20.9% during the first quarter of 2012, compared to 20.8% in the fourth quarter of 2011, but that percentage had dropped slightly in the second quarter of 2012, to 20.8%, to resume rising again during the third quarter of 2012 to 21.2%, before falling back slightly in the fourth quarter of 2012 to 21.0%.Banks deposits grew at 9.2% in 2012, rising by 7.1% to reach AED 1146.1 billion in the first quarter of 2012, compared to the last quarter of the year. However, by the end of the second quarter of 2012, customer deposits at banks operating in the country dropped by 3.4% on a quarterly basis amounting to AED 1107 billion. This drop was due mainly to the reduced size of the deposits of both the public and private sectors by 21.8% and 10.3%, respectively, compared In the first quarter, but deposits rose again at the end of the third quarter of 2012 by 3.3%, and continued to increase during the fourth quarter of 2012 to register AED1167.8 billion, On the side, bank loans advances and overdrafts increased by 2.6% in 2012, having risen by about 0.3% in the first quarter of 2012, compared to the fourth quarter of 2012, to mark AED 786 billion higher by 2.5% per year compared to the first quarter of 2011. By the end of June 2012 in the second quarter of the year, the volume of bank loans, advances and overdrafts went up by 1.52% compared to the first quarter of 2012, to amount to AED 1090.4 billion, increasing by 3.2% per annum compared to the second quarter of 2011. Banks continued its funding activities which spurred the volume of loans, advances and overdrafts at the end third quarter 2012 to AED 1103.2 billion, which in turn continued to rise to AED1099.1 billion by the end of the fourth quarter of 2012, The ratio of loans to deposits sub indicator fell to 49% in the first quarter of 2012, with the increase in bank deposits against growth of personal loans and advances, which was due mainly to the instructions of the Central Bank and the remedial actions to reduce risk at banks. However, with the decline of deposits during the second quarter of 2012, and the increase the volume of bank loans and advances on the other hand, that percentage increased to 99%, to revert back again during the third and fourth quarters of 2012 to 96% and 94% Respectively, with the substantial increase in the size of bank deposits during that period compared to loans. Banks continued their credit activities supported by the increase in the size of deposits and the strong financial position, with caution in anticipation of any external shocks.The financial performance indicator noted the UAE banks boosting of their allocations in the first half of 2011 as a precaution against any shocks, as the volume of allocation for doubtful debts amounted to AED 63 billion at the end of the second quarter of 2012, compared to AED 59.1 billion in the first quarter, registering an increase of 6.6%. These continued to increase during the third and fourth quarters of 2012 to AED 65.4 and AED 67.9 billion respectively, up by 22.8% in 2012.The volume of certificates of deposit at the Central Bank increased by 18.3% in 2012, However, with the drop in liquidity, the volume of certificates of deposit at the Central Bank also decreased by 9.7% to reach AED 49.5 billion at the end of 2012 compared to AED 88.2 billion in July of the same year. In the third quarter of 2012 the certificates of deposit hiked to AED 84.9 billion, and continued to rise to AED 95.1 billion at the end of the fourth quarter of 2012. The index revealed the varying performance of Abu Dhabi Securities Market in 2012, as the ASE general index improved significantly during the first quarter of the year scoring 2,553 points compared to 2402 points at the end of the fourth quarter of 2011 increasing by 6.3% with 2607.1points, in contrast to a decline by 2.1% in the same period last year.By the end of the second quarter of the year, the ADX general index dropped 105 points affected by the deteriorating performance of the world economy and its reflection on the performance of global financial markets, in addition to the decline in liquidity during the second quarter, as the index fell to 2447.6 points at the end of the first quarter of 2012, retreating by 4.1%, compared to a decline of 9.5% in the same period in 2011, where it registered 2704 points. Abu Dhabi Securities market performance improved in the second half of 2012, as profits of companies listed on the Abu Dhabi Securities market grew by 9% during the third quarter of the year compared to the same period last year.  The general index continued to rise during the second half of 2012, to reap 2605.4 points at the end of the third quarter and continued climbing up to score2627 points on 30 December 2012.The financial sector performance index cited positive changes in a set of its important sub indicators, especially the rate of inflation. A range of sub-indicators have had positive effect by pushing the General index of financial sector performance to enhanced and rise during the first quarter of 2012. On the part of real economy, the annual rate of inflation fell to 0.9% in the first quarter of 2012, to rise again during the second quarter of 2012 at the rate of 1.7% per annum.As for the second half of 2012, the rate of inflation declined during the third quarter of the year to reach 1.2% per year; then it continued to decline to 0.8% in the last quarter of 2012, bringing the inflation rate in the Emirate of Abu Dhabi in 2012 to 1.1% compared to the same period last year.The crude oil price greatly affects the financial sector performance. Murban crude prices witnessing   marked improvement during the first quarter of this year as it reached $ 121 per barrel on average, rising by 8% compared to the fourth quarter of 2011, when oil price lingered around $110 a barrel; before falling in the second quarter of 2012, with the deteriorating economic conditions in a number of major global economies, particularly the US and the Euro zone. Eventually oil prices dropped by 9% in the second quarter of the year, compared to the first quarter, to set at $ 110/barrel, and stay at the same level reached during the third quarter of the year. Oil price rose again at the end of the year to mark $ 112 a barrel on average in the fourth quarter of 2012.The domestic credit proportions to GDP, is one of the leading indicators of the general index of the financial sector performance in the Emirate of Abu Dhabi. Domestic credit declined gradually since the fourth quarter of 2009 to reach 280% in the third quarter of 2012. This decline was mainly due to the expected increase in GDP growth rates more than credit growth rates a long with the significant rise in oil prices and production in 2012, in addition to the keenness of banks to control credit policies and rebuild allocations necessary to face future challenges.In General, the UAE financial sector showed more ability to confront and meet the challenges and maintain stability, as many international institutions hailed the UAE for its financial performance. UAE kept the most advanced classification among best global economies in terms of financial stability, according to the financial development index for 2012 issued by World Economic Forum on 62 countries worldwide.
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