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Discuss this article (1 Comment)Buried on page 34 of yesterday’s edition of The Times was news that should have knocked MP’s expenses and even Jordan and Peter Andre’s divorce off the front page of UK newspapers.
The credit crunch has ended.
The London interbank offered rate (LIBOR), the rate at which banks lend to each other, fell to levels last seen in early 2003, and around one quarter the level of 2005 when subprime mortgage defaults rattled the US banking sector and set in chain events that led to the collapse of Lehman Brothers a year later.
The spread between the UK Bank of England base rate and Libor has also narrowed to 2007 levels, still not back to the razor thin spreads seen at the height of the credit splurge of 2005, but low enough to prompt respected economists and bankers to suggest “normal” lending should now resume.
The GCC banking sector is also returning to normal. The three month Emirates interbank offered rate (EIBOR) dropped to 2.4875 today, down from a peak of 4.7875 in October last year. The Saudi Arabian interbank offer rate (SAIBOR) is down to 1.13 percent after averaging 3.37 percent last year.
The technicality of whether the credit crunch is over or not may be of little interest to the average man on the street. But it is more than a mere academic question.
Interbank rates directly affect current and future home owners in the UAE. HSBC offers tracker mortgages of 4 percent above EIBOR, making home loans available today at 6.5 percent 2-3 percent lower than the banks variable rate of 8.5-9.5 percent, depending on the size of a customer’s deposit.
The new company that emerges from the merger of Islamic lenders Amlak and Tamweel is expected to open within weeks with competitive mortgage deals.
Lending is beginning to become cheaper and more affordable at the same time.
It is unlikely that lending to businesses and individuals will return to 2007 levels any time soon. Nor should it. Lending should be made on the conservative calculation of customers’ ability to service loans, and should be secured on assets that are properly valued or on salaries that can be reasonably expected to continue.
2007 lending was based on the price of real estate that was assumed to be permanently increasing, and on salaries that were expected to rise, uninterrupted, forever. The banks will not make the same mistake any time soon.
So while you may be able to wave goodbye to the credit crunch, you have to accept that living within your means in a new age of austerity is not going away any time soon.
This is not true