x Abu Dhabi, UAEFriday 28 July 2017

Barclays to quit Central Bank panel

Barclays volunteers to stand down from the panel that sets the UAE's benchmark borrowing costs, in the wake of the Libor scandal that claimed its chief executive.

Barclays is set to stand down from the Central Bank panel that sets the UAE's interbank borrowing costs after a rate fixing scandal in the UK. Jas Lehal / Reuters
Barclays is set to stand down from the Central Bank panel that sets the UAE's interbank borrowing costs after a rate fixing scandal in the UK. Jas Lehal / Reuters

Barclays is set to stand down from the Central Bank panel that sets the UAE's interbank borrowing costs.

The move, said to be voluntary, comes two weeks after a rate-fixing scandal forced the resignation of the United Kingdom lender's chief executive Bob Diamond.

The Central Bank has increased its oversight of UAE banks' liquidity with a regulatory drive intended to ensure lenders can withstand fresh bouts of financial panic.

Britain's second-biggest bank agreed last month to pay fines of US$453 million (Dh1.66 billion) imposed by US and UK regulators over its manipulation of London interbank offered rates, known as Libor, as part of a probe that has tarred the reputation of the UK's financial centre.

Its UAE equivalent, Emirates interbank offered rate, or Eibor, is formed of a panel of 12 banks that include Barclays. Several other banks said to be under investigation over Libor also set Eibor rates, among them Citibank and HSBC.

Banks on the panel are preparing to meet with the Central Bank later this week to discuss Barclays' move, according to people with knowledge of the matter.

The Central Bank did not respond to requests for comment. Barclays declined to comment.

Barclays' departure from the Eibor panel is likely to have little effect on borrowing costs for the UAE's banking sector but the lender does not have any obvious successor, said Khalid Howladar, a senior credit officer at Moody's Investors Service.

"One bank out of 12 isn't hugely significant but there are a limited number of banks left with any significant local scale that could suitably replace Barclays," he said.

There has been no suggestion of foul play in the UAE of the kind that has sparked regulatory probes in the United States, the UK, Canada and Japan.

However, banks have complained for years that Eibor neither reflects the cost of interbank borrowing nor behaves as it should.

Theoretically, Eibor rates should track the corresponding US dollar Libor benchmark because of the dirham's peg to the greenback.

However, since October 2008, Eibor rates have consistently been about 1 percentage point higher than the US equivalent.

"They should be at par," said a senior banker at the National Bank of Abu Dhabi who asked not to be identified.

"The only reason [for a divergence] is that there's going to be a devaluation or a revaluation. And there's zero speculation in either direction."

Almost unmoved since the start of the year, all of the UAE's benchmark rates fell sharply this month, with three-month Eibor rates down by 7.5 basis points to 1.45125.

The Central Bank has repeatedly expressed concerns about Eibor rates, reshuffling the panel in 2009 to include more local lenders.

Yesterday, the regulator said banks in the UAE would be required from 2015 to comply with global Basel III liquidity rules to bolster the financial system.

The Central Bank has told lenders to hold enough emergency stocks of easy-to-sell assets such as cash or sovereign bonds to help survive a theoretical 30-day crisis to make sure more of their funding is longer term.

"The UAE is not a member of the Basel III committee but they are the first country in the region to say they will comply with the rules from … the official date for Basel III," said Jaap Meijer, the head of financial research at Arqaam Capital.

Designed to reform regulation, risk management and supervision within the banking system, Basel III was drawn up in Switzerland in response to the financial crisis that started in 2008. Due to better levels of liquidity, the rules are expected to be less onerous for UAE banks than their European peers.