By Stanley Carvalho
Central bank hopes change in panel will lower rates and spur lending.
The UAE central bank will set up a new panel for the interbank offered rate, an official said on Wednesday, in the hope that the change will lower rates and spur lending.
The central bank expressed dismay earlier this month at persistently high interbank rates, saying they did not reflect the market. It announced a new mechanism to determine the rates, prompting speculation it may overhaul the panel of providers.
The new 11-bank panel, which will include four new local banks and the dropping of two international lenders, will get to work by mid-September, the official in the central bank's treasury department told Reuters, requesting anonymity.
The four local banks to be added are First Gulf Bank, Union National Bank, Mashreq Bank and RAKBank, while those to be dropped from the previous group of contributors are Lloyds Banking Group and the ABN Amro arm of the Royal Bank of Scotland group.
Emirates NBD will have one only slot on the panel, the official said, having previously held two, one for National Bank of Dubai and Emirates Bank, which merged to form ENBD in 2007.
"There will be 11 banks to provide EIBOR and we want to start from mid-September," the official said. More banks may be added to the panel in the future.
The other banks are National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, Commercial Bank of Dubai, Standard Chartered Bank, HSBC and Citibank Inc.
"I think it makes sense to have more participation from local banks on the panel," said Mohammed al-Hashemi, associate director of asset and liability management and money markets at Emirates Bank. "They have a good weight in the market."
Lloyds in Dubai declined to comment.
Currently, the 10 local and foreign banks on the panel submit their rates and the average of eight is calculated - excluding the highest and lowest figures.
Rates can vary widely between banks. For instance quotes provided for the fixing of the one-month interbank offered rate on Wednesday ranged from 1.25 percent from National Bank of Abu Dhabi to 2.35 percent from Abu Dhabi Commercial Bank.
"With a new panel hopefully Eibor will be more realistic," one Dubai-based banker said. As for how the central bank would ensure lower rates, he said: "The central bank will challenge the banks in a diplomatic way to bring their rates down."
Hashemi said it may have been in some banks' interest to keep rates high.
"Banks have definite arguments for keeping the Eibor high. Some of their portfolios may be based on Eibor and so it could affect their profitability," he said.
But the one-month rate has fallen to 1.79 percent from 2.05 percent on Aug. 3, a day before the central bank said it would introduce its new interbank offered rate mechanism, and bankers said they expected the decline to continue.
"(The rate) will probably go to below 1.5 percent in the next two months if the support the market has given to the central bank continues," Hashemi said.
Banks had been lowering the rates to "appease the central bank", the Dubai-based banker said. "I absolutely expect it to continue falling." (Reuters)For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
That's the first question the panel needs to answer.
Exactly, the banks here as ususal are fleecing the customers. the morgage rates which are based on EIBOR have huge margins -over 4% and some even higher, at times like this it is certainly NOT in the interest of Dubai City for the mortgage rates to be so high, banks should be forced to reduce their rates with a cap on the margins they are allowed to charge perhaps. Some of the banks in Dubai have reported huge half year profits, which under the circumstances is obscene as it shows all the burden of their misselling of loans has been placed on the customers. No doubt customers benefitted from the loans, but the bad decisions of the banks also penalise the customers!
I am paying 1.5% on my mortgage in UK.Hint, hint------ troubled markets - the right decisions will revive the markets and even the ever greedy banks will benefit in the long run