x Abu Dhabi, UAEFriday 19 January 2018

Falling Eibor rate to benefit big banks in UAE

The cost of lending is getting cheaper as more liquidity is pumped into the UAE's banking system, which bodes well for the country's biggest banks like National Bank of Abu Dhabi.

The cost of lending between banks is coming down, which means the prospects for the UAE's biggest banks are starting to look up.

National Bank of Abu Dhabi (NBAD), the country's second-largest lender by assets, is likely to benefit the most from the lower Emirates interbank offered rate (Eibor) because of its focus on lending to the public, analysts said.

Eibor is the interest rate charged by banks in the UAE for interbank transactions. It is similar to the London interbank rate.

UAE interbank rates have slipped to their lowest level in almost 17 months as unrest elsewhere in the region and the movement of money on-shore helped increase liquidity in the banking system.

The benchmark UAE three-month interbank offered rate was set at 1.883 per cent yesterday, below 1.889 per cent on Sunday and the 1.915 per cent before Dubai's restructuring issues arose in November 2009.

The Central Bank said it expected Eibor rates to decline further.

Because NBAD is also one of the banks most reliant on interbank funding, the company's margins improve more dramatically when it becomes cheaper to borrow, said Jaap Meijer, a bank analyst at Alembic HC Securities. He said he was expecting NBAD and First Gulf Bank to be the main beneficiaries of falling Eibor.

The country's bank deposits are at their highest level since the onset of the global financial crisis at the end of 2008. Total deposits in the UAE stood at Dh1.1 trillion in March, 5.3 per cent higher than in December, Central Bank data has shown.

Yesterday, shares in NBAD slipped 0.4 per cent to Dh11.2, but they have added 23 per cent since the end of February.