Central Bank prepares to limit the fallout to the banking system from Dubai World's request for a freeze on debt repayments.
Central Bank prepares to limit Dubai fallout
The Central Bank is preparing to limit the fallout to the banking system from the recent decision by Dubai World to ask its creditors for a freeze on debt repayments. Lenders in Abu Dhabi and Dubai hold billions of dollars of Dubai World debt and the company's decision to ask for a payment holiday could hurt bank share prices when trading resumes tomorrow.
"The Central Bank is considering measures to limit the risk of systemic damage to the banking system," said an adviser to the Government, adding that an announcement was expected tomorrow. Members of the Dubai Government met Central Bank officials in Abu Dhabi yesterday to discuss the measures. The Central Bank is keen to avoid banks taking provisions for bad loans to Dubai World, which would negatively affect profitability at a time when results are already suffering from the global economic slowdown.
The Central Bank is also keen to avoid further downgrades of credit ratings of the banks. A spokesman for the Central Bank said it was "monitoring developments to ensure there is no negative impact on the UAE economy", according to a report by Reuters. Meanwhile, advisers to Dubai World are working on a plan to enable the troubled conglomerate to meet a crucial deadline for repayment of one of its most important debts - the US$4 billion (Dh14.6bn) that its subsidiary Nakheel is due to pay back in just over two weeks.
This is one of four options being considered. If Dubai World were able to make that payment, it would create breathing space to deal with the rest of its liabilities - which currently add up to $59bn - and reassure world markets about Dubai's financial condition.