Bank deposits in the country’s financial system slipped 1.6 per cent in June 2012 to Dh1.107 trillion, according to the UAE Central Bank said.

In the same month, total loans and advances increased by 1.5 per cent to Dh1.090 trillion, while bank assets marginally increased by 0.4 per cent to reach Dh1.732.7 trillion.

A senior banker linked the decline in deposits to the rise in property prices in Dubai. With unattractive interest on deposits, people find investments into properties more promising and growing, he said.

On July 27, property consulting firm Knight Frank said the prime real estate in Dubai rose 1.8 per cent in the second quarter compared with the January-to-March period, outpacing the average gain 27 international cities.

On a year-on-year basis, Dubai prime property prices were up 2.3 per cent, the consulting firm said. The situation has improved in the realty sector in the recent months due to a resilience in the second-biggest Arab economy. “Banks are flush with liquidity, since lending has not grown that strongly.”

In its second quarter earnings report, the National Bank of Abu Dhabi reported a significant decline in deposits of Dh27.2 billion, or 14.5 per cent. In its statement, the Abu Dhabi-based financial institution attributed the fall to a significant portion of short-term government deposits, which were received in the first quarter, being withdrawn in the second quarter.

According to the central bank, money supply M0 — which comprises currency in circulation and currency at banks — decreased by 1.3 per cent to Dh53.1 billion in June from Dh53.8 billion at the end of May 2012.

It said money supply aggregate M1 — which comprises currency in circulation plus monetary deposits, i.e., current accounts and call accounts at banks — increased by 0.9 per cent to Dh284.3 billion up from Dh281.7 billion.

Money supply aggregate M2 — which comprises of M1 and quasi-monetary deposit comprises resident time and savings deposits in dirhams, commercial prepayments in Dirhams and resident deposits in foreign currencies — decreased by 0.6 per cent to Dh827.1 billion from Dh832.1 billion.

Money supply aggregate M3 — which comprises M2 plus government deposits at banks operating in the UAE as well as at the central bank — decreased by 2.6 per cent, from Dh1.055 trillion at the end of May to Dh1.028 trillion at the end of June.

During the first six months of 2012, intermediary monetary aggregate M2 increased by 0.2 per cent, while bank loans and advances increased by 1.8 per cent and bank deposits increased by 3.5 per cent.