Text size:

  • Small
  • Normal
  • Large

Lending slows as banks close for Eid

Rates rise and Central Bank's measures seem to have little effect.

The Central Bank's emergency measures to ease a credit crunch in the UAE appear to be having a limited effect - at least if the interbank lending rate is any guide. Rather than declining after the Central Bank's intervention, as had been hoped, interbank lending rates rose. Most observers think that few, if any, banks have taken advantage of the emergency lending facility. "The package was not as generous as people had thought when the original announcement was made," said Mushtaq Khan, an economist at Citigroup.

As long as banks worry that their peers may suffer from serious problems, they will probably continue to withhold funds from each other. "It's not yet clear whether the problem is... something the Central Bank can solve by simply adding liquidity, or whether there is a deeper malaise afflicting the market," said Ala'a al Yousuf, the chief economist at Gulf Finance House. "These things can cause a domino effect. If there is stress in the credit market, then the weakest link will give first, and then the next weakest link and so on. We don't know where the weakest link is until the system is stressed out. Then we'll find out," he said.

Bank lending rates throughout the Gulf shot up today, with the Emirates interbank offer rate (Eibor) breaking four per cent for the first time since January, hitting 4.19 per cent, compared with 3.96 per cent on Sunday. In Saudi Arabia, rates hit 4.06, another high since January. Last week, the Federal Government took special measures to ease a liquidity squeeze by injecting Dh50 billion (US$13.6bn) into the local money market. On Sunday and yesterday, the central bank of Kuwait followed suit, extending loans to local banks on a case-by-case basis and tailoring them to the banks' needs, according to an official at a large Kuwaiti bank.

The Kuwait central bank is understood to be asking for no collateral to back up the loans, which range in length from overnight to one month. The size and the interest rate has been at the discretion of the central bank, which in some cases has charged a rate of two per cent interest for overnight loans, and four per cent for one-month loans. The central bank of Kuwait could not be reached for comment.

Late last Thursday, the UAE Central Bank offered to lend local banks an amount equivalent to their reserve requirement, while charging them three per cent interest above the current Central Bank repo rate, which stands at two per cent today. The repo rate is the discount rate at which a central bank repurchases government securities from the commercial banks. The Central Bank declined to say how many banks had taken advantage of the offer.

"I was a bit surprised by Kuwait," said Mr Khan. "Not too long ago, they seemed determined to make a concerted effort to keep things tighter. Now, suddenly it seems they're injecting money into the market." Regarding the UAE, Mr Khan said: "I get the sense that banks have not availed themselves of the offer from the Central Bank last week." Banks and financial markets in the Gulf are likely to close for three days today to celebrate the Eid al Fitr holiday. Analysts are calling the timing of the holiday fortuitous, while wondering what effect this apparent lack of lending will have on the economy.

"It will give market participants some time to understand the complexities of the bailout transaction and the implications, if any, that the entire crisis may have for the region," said Imran Ahmed, the managing director of asset management at Mashreqbank in Dubai. "It's sort of like when you receive an e-mail: it's often better to sleep on it and send something out the next day, rather than writing something in the heat of the moment that you'll later regret," he said.

@Email:tpantin@thenational.ae

Back to the top

More articles


Editor's Picks

 The Greens, villas: Q1 no change. 3BR - Dh210-250,000. 4BR - Dh210-260,000. 5BR - Dh220-300,000. Q1 2013-Q1 2014 5% rise. Pawan Singh / The National

In pictures: Where Dubai rents have risen and fallen, Q1 2014

Find out how rental prices in the prime locations in Dubai have altered during the first three months of the year and the current rates you will pay according to data provided by Asteco.

 Above, the private pool of Ocean Heights' five-bedroom penthouse flat. Courtesy Christie’s International Real Estate

In pictures: Penthouse flat is height of Dubai luxury living

A five-bedroom penthouse in Ocean Heights in Dubai Marina is on sale for Dh25 million and comes with a private pool and an unparalleled view of Dubai.

 The cooling towers of the Temelin nuclear power plant near the Tyn nad Vltavou in Czech Republic. The country wants to continue expanding nuclear energy capacity despite cancelling a tender to build two new units. David W Cerny / Reuters

In pictures: Best business images for the week to April 17, 2014

Here are some of the best business images for the week to April 17, 2014.

 Three generations of the Hakimi family tend to their stall Crawford Market in Mumbai. Subhash Sharma for The National

In pictures: Shopper’s delight at Crawford Market in Mumbai

Crawford Market is an old British-style covered market dealing in just about every kind of fresh food and domestic animal imaginable. Later on renamed Mahatma Jotirao Phule, the market remains popular among locals and visitors by its old name, taken from Arthur Crawford who was the first municipal commissioner of the city.

 The Wind, Energy, Technology and Environment Exhibition takes place from April 14 to April 16. Above, the Dewa showroom during last year’s Wetex. Jaime Puebla / The National

April corporate and economic calendar for the UAE and overseas

From Cityscape to Wetex to stock-market holidays to nations reporting first-quarter GDP figures, here is our helpful calendar of April's business events in the UAE and internationally.

 Get the latest information on credit cards, bank accounts and loan products in the UAE. Mark Lennihan / AP Photo

Rates report: Latest on UAE loans, accounts and credit cards

Souqamal.com brings you the latest interest rates on banking products in the UAE.

Events

To add your event to The National listings, click here

Get the most from The National