UAE central bank Governor Sultan Bin Nasser Al Suwaidi said the country’s banking system has enough liquidity to meet the economy’s needs.
“The situation of liquidity and deposits in the banking system is normal and compatible with the economy and its needs at the moment,” Suwaidi said today in an interview in the Sudanese capital, Khartoum. “The banks lend when there is demand, when there are big projects that require a lot of financing.”
The cost of borrowing between UAE banks has increased since Dubai World’s announcement last year that it would delay up to $26 billion in debt payments. Some lenders are calling for a further injection of liquidity from a government that’s already offered banks more than 120 billion dirhams ($33 billion) to ease the effects of the global crisis.
The three-month Emirates interbank offered rate, the interest rate at which banks borrow and lend to one another, has risen to 2.29 percent from 1.89 percent at the end of 2009.
“We definitely do need” to bring down the cost of borrowing, Michael Tomalin, chief executive officer at National Bank of Abu Dhabi PJSC, said today in an interview. “One way, of course, is to provide more liquidity to the system, another way is to change the loans-to-stable resources formula” that the central bank uses to regulate lending, he said.
The government set up two credit facilities in 2008 of 50 and 70 billion dirhams to support banks. A third was made available after the Dubai World announcement in November, though has not been used, according to the central bank.
Dubai, the second-largest of the seven sheikhdoms that make up the UAE, on March 25 announced a plan to repay debts over eight years, proposals that were welcomed by lenders including HSBC Holdings Plc and Royal Bank of Scotland Group Plc.
The UAE’s economy is recovering from the impact of the global economic crisis, and will probably grow between 2.5 percent and 3 percent this year, the country’s economy minister, Sultan bin Saeed al-Mansouri, said on Feb. 15.
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