ABU DHABI // The country should take steps to insulate itself from global economic uncertainty, the Governor of the Central Bank said Thursday. Sultan al Suwaidi told a banker's lunch at the Emirates Palace hotel that the country's financial system had felt the pain of the global crisis, even though its banks had not ventured into risky structured investment products and derivatives that helped spark the crisis in the West. "If we analyse things to find out why the UAE financial system was affected by the crisis, one major reason is that we have taken the global financial system for granted when we take part in any shortcomings," Mr al Suwaidi said. "But I am not going to worry about how to fix the global financial system. I would rather that we take initiatives to become a more insulated country to avoid the risks associated with total integration." Mr al Suwaidi stopped short of outlining proposals to insulate the UAE's financial system, but said the financial crisis would result in a general tendency "to develop local banking systems with 100 per cent reliance on local funding". He said that GDP would was likely to slow this year "from the high single digits to the low single digits", a forecast matching recent predictions by economists. Mr al Suwaidi reiterated that local bank balance sheets were healthy and lending activity was restarting, thanks in part to the Government's injections of capital in recent months. Last September, the Central Bank allowed banks to overdraw their accounts by Dh50 billion (US$13.61bn), although Mr al Suwaidi said banks had stopped using this facility. The Government also made Dh70bn in deposits available to banks last year, and Abu Dhabi this month spent Dh16bn recapitalising five of its banks. "Liquidity at banks is stable now and no bank in the UAE is overdrawing its current account beyond its reserve requirements," Mr al Suwaidi said. "Interbank interest rates have come down, but are still relatively higher than some other GCC countries." The three-month Emirates interbank offered rate - an average of interest rates that banks charge each other for loans - stands at about 3.43 per cent, down from 4.79 per cent last October. That rate compares with 1.14 per cent in Saudi Arabia and 2.75 per cent in Kuwait. As a further measure to lower interbank interest rates, Mr al Suwaidi said he was working with the Ministry of Finance to help tip the balance of bank deposits towards the retail segment. A strong retail deposit base is considered less risky for banks than large deposits held by corporations, as corporate withdrawals on a large scale could quickly use up loan reserves. "Generally speaking, retail deposits are considered more stable," said John Tofarides, an analyst at Moody's in Dubai. "If you have a high concentration in your funding base and you lose one of your deposits, you will probably face liquidity pressure." Mr al Suwaidi said the scheme to encourage stronger retail deposits would be put in place soon, but he did not provide any further details. "We believe the scheme that we intend to put into place soon for corporate-to-bank deposits will also influence the interbank rate and will eventually bring it down." firstname.lastname@example.org
What will be the big trend in the technology world in 2014?
What will be the dominant trends over the next twelve months? Let us know by taking our online poll.
Homefront: no rent cap on property in DIFC
Property expert Mario Volpi is here to help readers with their property issues.
UAE developments light up the International Property Awards
Etihad Towers on the Abu Dhabi Corniche and Akoya by Damac on the outskirts of Dubai were both recognised by the IPA in a set of awards for the best architecture on the globe.
In pictures: Etihad’s new destinations for 2014
The Abu Dhabi carrier is heading to all corners of the globe on its new routes.
Put your UAE mortgage on the map
Ever wonder what your neighbours pay on their home loan? The National has launched a way to compare rates around the country, with the goal of improving the UAE's financial transparency.
Rates report: Latest on UAE loans, accounts and credit cards
Souqamal.com brings you the latest interest rates on banking products in the UAE.
UAE economy should 'insulate' itself - Suwaidi
- Most Viewed
- Most Commented
- Can an employer refuse request for Christmas Day off
- Money and me: from Toyota Corolla to a Porsche Cayenne for Dubai construction manager
- Adnoc is the top employer of choice for UAE students
- UAE-based Rotana to be first foreign hotel firm in Iran since revolution
- Money Clinic: how to ease the pain of paying the rent all in one go
- Most Viewed
- Most Commented