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NBAD payment signals a return to confidence

The revelation that NBAD will soon finish repaying a Dh5.6bn loan from the Government shows that the UAE is part of the solution to the world financial crisis.

The news that a bank has repaid a loan may seem mundane. But when the National Bank of Abu Dhabi, the nation's largest, announced it will pay off by June a Dh5.6bn (US$1.52bn) loan given to it by the UAE Government in 2008, it was an important marker of improving sentiment within the UAE. The final payment will be fully four years earlier than scheduled.

The loan was part of a critical injection of liquidity into the banking sector that followed the collapse of Lehman Brothers, a US bank, in 2008. With markets worldwide in turmoil and many global banks teetering, the Government sough to shore up liquidity and confidence in the UAE's banking sector to protect the stability and confidence in the sector. The move injected Dh42 bn across all banks.

Those dark days of global alarm verging on panic have receded now, but there is still plenty of anxiety.

Within the last week, the complicated banking crisis in Cyprus has rippled through the euro zone, to Russia, and around the planet, focusing minds once again on the danger of the fragility created when banks overreach and regulators are too loose.

In that context, the early NBAD repayment is a beacon, signalling a return to something like pre-crisis stability for the sector and even for the broader economy.

To be sure, the UAE has advantages other countries may envy, but using resource revenue wisely is also an advantage: As NBAD chief executive Michael Tomalin noted on Tuesday, the Government's early action in supporting banks "allowed the country to remain strong and avert the most severe conditions of the global recession".

Striking a balance is the real challenge now: the ideal is to make credit available to entrepreneurs with sound plans, while avoiding a build-up of dodgy debt. That is the way to steer well clear of any future crisis.

Already, we are seeing all the markers of improving sentiment in Dubai and more recently in Abu Dhabi, where earlier this week an annual business confidence survey, conducted by the Department of Economic Development, registered a notable increase in optimism compared to 2012.

The UAE will eventually be able to say that this country and its banks, at least, are part of the solution and not part of the problem.

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