Central bank's emergency fund arrives at a premium
The central bank has finally announced the terms of its Dh50bn (US$13.6bn) emergency fund for the embattled banking sector. It will allow banks to borrow up to their reserve requirements - but will charge a premium to market rates. Bankers had been hoping that interbank lending rates would ease on the news, but instead they rose slightly from 3.66 to 3.76 per cent. Rates have more than doubled since June, as foreign banks withdrew funds because of the credit crunch and on the realisation that the dirham was unlikely to be depegged from the dollar soon. Some bankers question whether the measures will be sufficient, for on these terms few are likely to tap the credit line except as a last resort.
No bank has yet declared that it will take advantage of the facility, as turning to the central bank is often seen as a sign of weakness. However, these are exceptional circumstances and some may yet be forced to do so. The central bank holds deposits from the UAE's banks of Dh244bn (US$66bn). Analysts say there may be the potential for banks to borrow up to this amount if needed, but suggest this is unlikely to happen.