The UAE set the interest rate on the first tranche of a 70 billion dirham ($19.06 billion) emergency package for banks at the rate for 5-year US treasury bonds plus 120 basis points or 4 percent, whichever is higher.
The finance ministry warned banks of penalties if they used the funds for speculation instead of providing loans locally. It did not say what the envisaged penalties were, the official WAM news agency said on Thursday
Banks will be required to make interest payments every three months, it said.
The ministry did not specify how the money, which came from a 70-billion-dirham rescue facility, was injected into the banking system, but bankers have said it provided the funds as long-term deposits.
Banks should also draw up plans to weather slower credit growth, it said, citing the ministry statement.
“Banks should focus on activities that support the local banking sector and the national economy and for entering speculation at local or foreign markets,” WAM said, citing a statement.
“Banks should actively take part in the interbank market, particularly (focusing on) deposits to guarantee the flow of liquidity at the banking system and to provide loans to small and medium projects at reasonable prices,” it added.
The interest rates apply to the first 25 billion of the 70 billion dirham facility pledged earlier this month to help banks face a global liquidity crunch.
States across the world’s biggest oil-exporting region are trying to cope with the worst global financial crisis since the Great Depression, which threatens to put the brakes on a regional economic boom.
The global turmoil has hit the Gulf region after six years of high oil prices allowed state and private investors to funnel billions of dollars into industry and infrastructure projects. (Reuters)
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