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Tue 27 Jul 2010 02:58 AM

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'UAE borrowing costs may decline' - Emirates NBD

Deposit rates likely to fall over the next six months, helping to bring down costs.

'UAE borrowing costs may decline' - Emirates NBD
RATES DECLINE: UAE interest rates may decline in the second half due to liquidity improving and easing competition for deposits. (Getty Images)

UAE interest rates charged by banks may decline in the second half as liquidity improves and competition to win deposits eases, Rick Pudner, chief executive officer, Emirates NBD, said.

Many of the country’s banks have worked over the last year “to increase the levels of liquidity and deposits,” Pudner said on a conference call today, after announcing the bank’s second quarter results.

He said: “The pressure is slowly reducing on deposit rates,” which are likely to fall over the next six months and should help bring down borrowing costs.

Borrowing costs in the UAE, the second biggest Arab economy, have risen 25 percent since January as banks competed to attract customer deposits.

The three month Emirates interbank offered rate, the rate at which banks borrow and lend to one another, climbed to 2.34 percent on July 26, the highest this year, from 1.88 percent on Jan 5, according to data compiled by Bloomberg.

The UAE currency is pegged to the dollar and local interest rates usually track those in the US. The London interbank offered rate stood at 0.49 percent today.

Emirates NBD’s net interest margin, the difference between what the bank earns on loans and pays out on deposits, narrowed to 2.54 percent in the second quarter from 2.59 percent in the first, the bank said today.

There will be a “slight erosion” in net interest margin in the second half, Pudner said today.

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