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02:24 25Sep08 RTRS-UPDATE 2-UAE cenbank gives banks access to costly funds
(Adds details, analyst comment, background)
By Stanley Carvalho and Daliah Merzaban
ABU DHABI/DUBAI, Sept 25 (Reuters) – The UAE central bank
said it would give banks access to short-term funds at a premium
to market rates from Thursday to ease tensions in money markets
as it sought to stave off effects from the global credit crunch.
Banks in the United Arab Emirates said the facility offered
reassurance that ample funds will be available to keep the
financial system functioning, but at a cost high enough to
promote prudent lending and a gradual slowdown in loan growth.
Central banks across the oil-exporting Gulf have faced
uncomfortably high credit growth that in the UAE hit 49 percent
in the year to June. A near doubling of money market rates in
four months threatens to rapidly brake this loan growth.
The central bank said on Monday it would launch a 50 billion
dirham ($13.62 billion) emergency facility to address tension in
the money markets, but left banks waiting for more than two days
for details on the structure.
“The central bank wants to strike a balance because you
don’t want to keep credit growth at these levels,” said Marios
Maratheftis, regional head of research at Standard Chartered
Bank.
“Banks should slow down their credit growth but you need an
orderly slowdown.”
Under the programme, banks can borrow an amount equivalent
to their required reserves at the central bank’s repurchase rate
plus 3 percentage points. The repo rate is 2 percent and the UAE
bank reserve requirement on demand deposits is 14 percent.
Banks borrowing more than their reserve level need to pay
the repo rate plus 5 percentage points, according to a circular
released to banks late on Wednesday.
Calling the rates “high”, bankers in Dubai and Abu Dhabi
said lenders may choose to turn to the facility only as a last
resort and, with credit conditions tightening globally, they
would be more careful about their lending.
Interbank rates in the UAE rose on Thursday, the one-month
rate climbing to 3.7625 percent from 3.66875 percent a
day earlier.
“The measure tells the banks that if they are unable to
raise money from their own resources, they can approach the
central bank, but it would cost more,” said a senior banker in
the Union National Bank treasury department.
To ease a liquidity squeeze in the market that tends to
happen at the end of the week, the central bank said it would
also temporarily abolish a six-day limit on settling overdrafts
on current accounts.

CONTROLLING CREDIT GROWTH
With economies surging on a more than five-fold rise in oil
prices since 2002, Gulf states want to finance massive
infrastructure, real estate and industry projects to diversify
their economies away from a reliance on energy exports.
But they are also battling inflation at record- or
near-record peaks, and dollar pegs in most Gulf states,
including the UAE, have forced them to keep interest rates low
in line with the U.S. Federal Reserve.
Gulf Arab states outside the UAE said on Wednesday they
would be ready to provide liquidity to help local lenders resist
a global financial crisis but saw no need to step in yet and
instead welcomed a moderation in credit growth.
Bankers had expected the central bank would offer emergency
funds at close to interbank rates, but said that move would have
promoted credit growth, which the central bank wants to avoid.
“The central bank is very careful, it is a very thin line
and the central bank did not want to overstep it,” said a senior
banker at Abu Dhabi’s First Gulf Bank.
(Additional reporting by John Irish in Dubai; editing by
Stephen Nisbet)
((daliah.merzaban@thomsonreuters.com; +971 4 391 8301; Reuters
Messaging: daliah.merzaban.reuters.com@reuters.net))
($1=3.672 dirhams)
Keywords: UAE FACILITY/

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Thursday, 25 September 2008 02:24:32
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