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 UAE 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.

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