UAE assets can meet local banks’ demands

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Dubai's economy has withstood the 2008-09 global financial crisis resiliently thanks to the effective policies adopted by the country's rulers. Photo - Kamran Jebreili/AP

Banks in the United Arab Emirates have enough dollar liquidity to cover the needs of local banks and the exposure of the OPEC member’s banks to the euro zone crisis is limited, a newspaper quoted a central bank official as saying on Tuesday.

The UAE central bank’s dollar assets were enough to fully cater to the needs of local banks “immediately”, Saif Hadef al-Shamsi, senior executive director at the central bank’s treasury department, told the Arabic newspaper Al-Ittihad.

“There is no problem on our side,” he was quoted as saying.

Shamsi also said the exposure of local banks to European banks was limited, adding banks operating in the country had risk management departments dealing with the global economic crisis and banking developments affecting the world.

Spanish press reported US President Barack Obama as saying the Eurozone’s leaders need to show markets they are taking responsibility for its debt crisis and working out to tally monetary union with budget policy.

European markets have taken a hammering from growing expectations of a Greek debt default, worries over French banks due to their holdings of debt and renewed rises in Italian bond yields.

Shamsi said banks in the UAE should be careful in their deposits with foreign banks abroad, the paper explained, adding “the local banks must have risk management able to choose their partners in the global markets.”

Deposits in the OPEC member’s banking system stood at AED1.113 trillion ($308bn) in July, from AED1.126 trillion in the previous month, central bank data showed.

Shamsi also said the surplus liquidity of banks operating in the local market exceeded AED100bn, and that many of the monetary tools provided by the central bank to banks were not being used.

UAE private sector credit growth was unchanged year-on-year at the end of May, after a dismal 0.2 percent year-on-year increase in April, central bank data showed. It showed annual growth rates of above 50 percent at the height of the oil and property boom in 2008.

UAE interbank rates have been falling gradually to seven-year lows this year as liquidity increased and sentiment improved after last September’s Dubai World $25bn debt restructuring.

The benchmark UAE three-month interbank offered rate , based on quotes from dozen of banks, was set at 1.476 percent on Tuesday, holding near the lowest level since June 2004. But it is still well above the Saudi benchmark of 0.6 percent.

RESILIENT DUBAI

Key sectors of the UAE economy such as real estate and financial services are poised for strong growth as the downturn in these sectors seems to have bottomed out, Shehab Gargash, managing director of Daman Investments, said Tuesday.

“The UAE economy has come a long way from 2008-09 when it was gripped by the global financial crisis. Clearly the liquidity situation has improved and central bank statistics indicate there is an upsurge in bank deposits although the loan growth is yet to pick up,” Gargash added.

Although the UAE economy too faced hardships on account of the global recession, its economic policy proved to be sustainable, the investment banker opined.

Despite all the negative publicity Dubai attracted following the global financial crisis, Gargash said the emirate has proved that it has a sustainable economic model.

“All those who predicted the end of Dubai’s economic phenomenon following the global financial crisis are now eating their words and will continue to do so,” he said.

Talking about the viability, he stressed, “UAE’s economic policy during the global turmoil has proved its practicality and viability in difficult times. While the government extended its support to some of the key sectors like banking and infrastructure development, it largely kept away from intervening in markets reflecting its commitment to free markets,” he concluded.

In March, bank deposits in the world’s No. 4 oil exporter had risen to their highest level in at least more than two years as depositor’s stored money in banks due to social unrest in the region.

However, UAE banks still remain hesitant to lend following Dubai’s debt woes and weakness in the property sector.

Sources: arabianbusiness, gulfnews

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