Government deposits held in UAE banks fell 13 per cent in the first two months of this year to their lowest level since late 2008, indicating policymakers are more comfortable with liquidity in the system now the worst of the financial crisis is over.

Gulf governments boosted their deposit levels at the height of the global financial crisis to help banks weather the downturn, according to a report in our sister newspaper Gulf Daily News.

Economic recovery has now reduced the need for them to keep money in banks although liquidity is still tight and credit growth is expected to be slow this year due to debt restructuring in Saudi Arabia and Dubai.

Government deposits at UAE banks fell to Dh179.4 billion ($48.86 billion) at the end of February, the lowest level since the third quarter of 2008, from Dh206.2 billion in December, central bank data showed.

'We have been seeing that net government deposits in the banking sector has been coming down since the second quarter of last year across the GCC,' said Monica Malik, chief economist at EFG-Hermes in Dubai.

'This is particularly as the central banks and the governments became more comfortable that liquidity in the banking sector was ample,' she added.