UAE banks set aside a further Dh4 billion ($1.08 billion) in specific provisions for non-performing loans in the third quarter, according to data published on the central bank's website, but the pace of increase appears to be slowing.

Provisions for NPLs at September 30 set aside for specific defaults totalled Dh27.8 billion, compared with Dh23.9 billion at the end of June, the largest quarterly jump this year.

At the end of September 2008, the figure for specific NPL provisions stood at Dh18.6 billion. Total provisions, including general provisions, equalled Dh36.7 billion at Sept. 30, an increase of Dh3.2 billion from Dh33.5 billion at the end of the previous quarter.

In contrast, provisions grew by Dh5.3 billion in the second quarter, showing a slowdown in default rises. 'NPLs are often a lagging indicator of the health of the general economy,' says Deepak Tolani, banking analyst at Al Mal Capital.

'Although specific provisions are increasing, from a general economic perspective, we can see a slowing down of NPL growth, even though they are still growing.'

Figures for October, released on Monday, suggest this is the case. Total provisions reached Dh38.3 billion at the end of October, an increase of 4 per cent month on month.

The bottom line numbers at several UAE banks showed that third-quarter profit was hard hit by an increase in impairments for bad loans.

Federal initiatives to support banks facing depleted deposits and tighter lending have included Dh150 million in liquidity and deposits from the finance ministry and the central bank, combined.

The government also pledged to guarantee all deposits and interbank lending. Central bank data showed that bank deposits increased to Dh977.2 billion at Sept. 30 from Dh961.7 billion at the end of the second quarter.

The capital adequacy ratio, an indicator of a bank's financial strength, stood at 18 per cent at the end of September, up from 13 per cent in the year-ago period.-Reuters