x Abu Dhabi, UAEWednesday 26 July 2017

Government considers US stimulus model

Central Bank working with Ministry of Finance to formulate new policies, similar to those enacted in US and UK.

MANAMA // The Government is considering new options to help aid the nation's financial sector, according to the UAE governor of the Central Bank, Sultan bin Nasswer al Suwaidi. He said the Central Bank is working with the Ministry of Finance to formulate new policies, similar to those that have been enacted in the United States and the United Kingdom. "There will be some arrangements to help the banks [decrease their loan to deposit ratios], but there a lot of issues. There is not only one solution for the whole thing. It is not only a cash injection that you need to do. You need to do multiple things, like they did in the US or the UK," Mr Suwaidi said.

So far, the Ministry of Finance has injected Dh50 billion into local banks in the form of deposits, but it has also promised to inject an additional Dh20bn. Mr Suwaidi said the government is still formulating the terms and the timing of the final injection. "They have a lot or work to do before they decide to put the money in total," he said, referring to the Ministry of Finance. Mr Suwaidi also said that the local banking sector is not endangered by its exposure to the property sector, especially when compared to western banks. "We have only Dh172bn in real estate. This is all the three categories: commercial real estate loans, mortgage real estate loans, and to developers. The capital bases in all the UAE banks is Dh180bn, so we are way above the total exposure. You can see also our real estate loans present only 17.8 per cent of our GDP. Compare that with other major countries, they are way beyond the 60 per cent." Non-performing loans will also rise this year, he said. "If nobody expecting NPL's to go up, I think they are living in a different world. ? But we don't have toxic assets." Deposits in local banks will grow this year, he said. There will be "some foreign deposits but also local deposits are growing, because ? people are still employed, whether in the federal government or in the local governments, no redundancies will be made, so people will continue to make money and hold it." Mr Suwaidi said the Central Bank is estimating the average price of oil this will not rise above US$44 a barrel. "This year we don't expect the average price to be more than ? about $44, $40 dollars." Mr Suwaidi added the central bank is making efforts to speed up the development of the local debt markets and that he hopes to see significant developments within the UAE that could help create a more robust debt market this year. "I think it is the right time to have our own capital market in the UAE, especially for debt instruments, we don't have that yet," he said. "I think it is a natural development, but it will be put on the fast track because of this shut down in the global capital markets." In its early stages, the GCC common currency could be pegged to the dollar, Mr Suwaidi said. Over the past few years, analysts have also speculated that the currency might be pegged to a basket of currencies, to the dollar, or that it could be allowed to float freely. Mr Suwaidi's comment was among the first from a GCC central bank governor explicitly addressing the matter. "The monetary union is based on a calculating unit given a certain value, and that calculating unit can be used in the electronic settlement systems," he said. "Maybe we will have a uniform currency pegged to the dollar to start with. The initial phase of the union will be based on the establishment of this unit." tpantin@thenational.ae