UAE bank NBAD says government deposits drop by $13 billion

* NBAD Q3 profit 1.33 bln dhs vs 1.37 bln dhs

* NBAD warns of interest rate rise

* NBAD buys RBS (LSE: RBS.L - news) 's India loan book for 3 bln dhs (Adds CEO comment, more detail)

By Stanley Carvalho and Hadeel Al Sayegh

ABU DHABI, Oct (HKSE: 3366-OL.HK - news) 28 (Reuters) - National Bank (NYSE: NBHC - news) of Abu Dhabi (NBAD), the United Arab Emirates' largest bank by assets, said government deposits dropped by 48 billion dirhams ($13 billion) in past 12 months after it reported a 3 percent fall in third-quarter profit.

The bank's chief executive Alex Thursby said on Wednesday that the UAE banking system as a whole lost 56 billion dirhams in government deposits from September 2014 to September 2015.

The outflow highlights the impact of current low oil prices on the UAE's government finances. The International Monetary Fund in June forecast the UAE's economic growth would slow to 3 per cent this year, down from 4.6 per cent last year and that the country is set to post its first fiscal deficit since 2009 because of lower oil revenues.

"We do think tightening liquidity will eventually force banks to raise interest rates and will push NBAD to raise rates," Thursby said on a conference call with analysts.

"We will always trade off return for safety in the current uncertain outlook, even if it slows our growth profile," Thursby told reporters.

In July, NBAD had said it did not expect further big outflows of government deposits after these fell by 37 billion dirhams during the first half of 2015.

Most banks in the region are grappling with margin pressures and liquidity issues as the UAE and other Gulf oil producing states face a squeeze on budgets from lower oil prices.

NBAD, seeking to diversify outside its home market, bought Royal Bank of Scotland's offshore loan book in India this month for 3 billion dirhams, Thursby said. NBAD plans to start operations in India next week.

NBAD made a net profit of 1.33 billion dirhams ($362 million) in the third quarter ended Sept.30, down from 1.37 billion dirhams in the same period last year, missing analysts forecasts.

Four analysts polled by Reuters had forecast an average net profit of 1.45 billion dirhams

NBAD's deposits shrank to 235 billion dirhams in the first nine months this year from 265 billion dirhams in the corresponding period of 2014 due to an outflow of government deposits.

Despite higher interest income and lower impairments in third quarter, NBAD's profit fell due to lower non-interest income which fell to 763 million dirhams from 774 million dirhams in the prior-year period.

Loans grew 7 percent in the first nine months of this year over the same period last year, but Thursby said he expected loan growth to slow down across all sectors in the UAE going forward.

(Reporting by Stanley Carvalho and Hadeel al Sayegh; editing by Tom Arnold and Jane Merriman)