UAE interbank rates drop post cenbank's benchmark plan

LOWER RATES: Nbad reduced its rates from between 15bps to 25bps on Wednesday.(Getty Images)

Interbank offered rates in the UAE fell on Wednesday, a day after the central bank said it was concerned current rates did not reflect the market and was in talks to create a new benchmark mechanism, under its remit.

Several banks lowered offered rates - and bankers said more were likely to follow suit - after the central bank openly mulled the creation of an official Emirates interbank offered rate (EIBOR).

The UAE's three-month interbank offered rate fell to 2.43 percent on Wednesday from 2.45 percent a day earlier.

The six-month rate dropped to 2.77 percent from 2.80 percent while the one-year rate was down to 2.98 percent from 3.01 percent a day earlier.

The rates have barely budged since May, to the dismay of the central bank which is keen to boost the pace of lending in the UAE where interbank rates remain stubbornly above others in the region, particularly Saudi Arabia.

The UAE central bank on Monday met with the banks that contribute to creating the interbank rates to discuss creating the new benchmark. On Tuesday, it announced it is in talks to establish an official interbank offered rate for the dirham to better reflect market conditions.

"It is very clear that there's a strong push to get rates down and this is one of the ways to do it," said the head of treasury at an Abu Dhabi bank. "There may be other ways to do it.

"If EIBOR goes down, everything will go down which means deposits, loans."

The central bank has said no measures were needed to bridge the gap between loans and deposits at UAE banks, which has left banks short of liquidity to extend new loans. But some analysts say the lender of last resort may have to take more overt action to rectify the problem.

Emirates NBD, the country's largest bank by assets, and Abu Dhabi Commercial Bank both lowered their offered rates by 5 basis points on Tuesday across the board, a treasury official at another Abu Dhabi-based bank said on Wednesday.

National Bank of Abu Dhabi reduced its rates from between 15 basis points to 25 basis points on Wednesday across the board, the banker said, declining to be identified.

"There's already some effect of the central bank's action. Other banks may reduce rates tomorrow," he said.

The official EIBOR rate would be calculated under a process that could change from the existing one where 10 local and foreign banks submit their rates and the average of eight is calculated -- excluding the highest and lowest figures. .

"We have not set an exact date but it should be launched in a month's time," a treasury official at the central bank told Reuters. "We need some time for preparation."

The 10 banks are: Abu Dhabi Bank Commercial Bank, ABN Amro, Citibank, Commercial Bank of Dubai, Emirates Bank, National Bank of Dubai, HSBC Bank, Lloyds TSB Bank, National Bank of Abu Dhabi and Standard Chartered Bank. (Reuters)

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