Analysts expect new gov't cash boost for banks

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LIQUIDITY BOOST: Analysts expect government officials to top up the emergency lending facility to ease the credit crunch in 2009. (Getty Images)

Analysts have predicted the UAE government will top up the 120 billion dirham ($32.6 billion) emergency lending facility to boost liquidity in the banking system this year, as credit is expected to remain tight.

So far the authorities have pumped $32.6 billion into the financial sector to encourage lending between banks.

A further cash injection would be a sign that the UAE's liquidity problem is not easing as quickly had been hoped.

Raj Madha, analyst at Egyptian investment bank EFG-Hermes in Dubai said: “They [the government] may plausibly be topping up the $32 billion in the second half if they find that credit markets have not eased to the extent expected.

"I think liquidity will remain under pressure. I don’t think in the near future, for the next three to six months, things will improve on the bank lending front.”
The country’s liquidity problem, which has made it harder for small companies such as developers to get loans and property buyers to secure a mortgage, has hit the real estate market.

Values are falling and developers with no access to credit are being forced to cancel projects as their cash flow dries up.

“We need more in the way of bailouts. The authorities should to do it in a measured way, they don’t want to go back to where we were before, they want to add just enough liquidity to keep the system going, so they don’t flood the system,” Marios Maratheftis, head of research at Standard Chartered bank said.

At the end of Sept, UAE Central Bank unveiled plans to pump $13.6 billion into the banking system. Three weeks later, an extra $19 billion liquidity injection was announced.

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