UAE Central Bank Stands Behind Lenders, Adds Funds
Nov. 29 (Bloomberg) -- The United Arab Emirates’ centralbank said it “stands behind” the country’s local and foreignbanks, which face losses from Dubai World’s possible default,and offered them access to more money under a new facility.
The central bank will make available to banks “a specialadditional liquidity facility linked to the current accounts”at the central bank that can be drawn upon at a cost of 50 basispoints above the three-month Emirates inter-bank offered rate,the Abu Dhabi-based regulator said in an e-mailed statementtoday.
Dubai World, a state-owned holding company struggling with$59 billion of debt and other liabilities, said Nov. 25 it wouldseek a “standstill” agreement with creditors. The news led toa slump in financial markets around the world and raisedprospects of rising loan write-offs for U.A.E. and foreignbanks.
“This is a very re-assuring move by the central bank inorder to limit the risk of any run on Dubai-based banks,” saidJohn Sfakianakis, chief economist at Banque Saudi Fransi inRiyadh. It will alleviate any “liquidity concerns by foreignbanks about the banking system, mostly those based in Dubai,” hesaid.
The U.A.E.’s banking system is “more sound and liquid thana year ago” and local banks’ sale of medium-term notes andcommercial paper in foreign markets has declined by 25 percentover the period, the central bank said. Foreign interbankdeposits make up only 5 percent of overall interbank deposits,the central bank said in the statement.
To contact the reporter on this story:Arif Sharif in Dubai at asharif2@bloomberg.net
Last Updated: November 29, 2009 08:42 ESTSource: Bloomberg
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