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UAE banks to get costly funds |
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9/26/2008 2:08:17 PM |
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The UAE Central Bank said it would give banks access to short-term funds at a premium to market rates to ease tensions in money markets as it sought to stave off effects of the global credit crunch.
Banks in the UAE said the facility widens the definition of acceptable collateral and offers reassurance that ample funds will be available, but at a cost high enough to promote prudent lending and a gradual slowdown in loan growth.
Central banks across the Gulf have faced uncomfortably high credit growth that in the UAE hit 49 per cent in the year to June. A near doubling of money market rates in four months threatens to rapidly brake this loan growth.
The central bankcentral bank said on Monday it would launch a Dh50 billion emergency facility to address tension in the money markets, but did not give details for two days.
"The central bankcentral bank wants to strike a balance because you don't want to keep credit growth at these levels," said Marios Mara-theftis, regional head of research at Standard Chartered.
"Banks should slow down their credit growth but you need an orderly slowdown."
In two separate statements, the central bankcentral bank said banks could borrow funds against the reserves they hold with the central bankcentral bank and against approved debt.
Under the first, banks can borrow an amount equivalent to their required reserves at the central bankcentral bank's repurchase rate plus 3 percentage points. The repo rate is 2 per cent and the UAE bank reserve requirement on demand deposits is 14 per cent.
Banks borrowing more than their reserve level need to pay the repo rate plus 5 percentage points, according to a circular released to banks late on Wednesday.
"The measure tells the banks that if they are unable to raise money from their own resources, they can approach the central bankcentral bank, but it would cost more," said a senior banker at the Union National Bank treasury department.
Banks could also borrow funds from the central bankcentral bank using certificates of deposit as collateral for repurchase deals, the central bankcentral bank said in a second statement.
The central bankcentral bank would accept other debt securities as collateral for funding, it added, without giving details.
It set conditions on the funding, saying banks drawing on the facility must limit growth in fresh credit and general expenses, and liquidate their interbank lending positions.
Calling the rates "high", bankers in Dubai and Abu Dhabi said the facility was a last resort and, with credit conditions tightening globally, they would be more careful about lending.
UAE interbank rates rose on Thursday. The one-month rate rose to 3.7625 per cent from 3.66875 per cent a day earlier.
With economies surging on a more than five-fold rise in oil prices since 2002, Gulf states want to finance massive infrastructure, real estate and industry projects to diversify their econ-omies away from a reliance on energy exports.
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Source: Zawya.com |
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