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Banking on trust: UAE banks urged to trim loan margins

Banking on trust: UAE banks urged to trim loan margins

UAE Central Bank urges banks to reduce lending rates. Will banks follow suit when there’s much to capitalise on?

May 30, 2011 4:28 by

Banks in the UAE should bring down interest rates on loans as much as possible since they are awash with liquidity, Khaleej Times on Monday quoted the country’s central bank governor as saying.
Bank deposits in the world’s No.3 oil exporter rose in March to their highest level in at least more than two years as depositors stored money in banks due to social unrest in the region. However, UAE banks remain hesitant to lend following Dubai’s debt woes and weakness in the property sector.
“Those borrowers, especially merchants and businessmen, are complaining about high interest margins on their banking facilities,” Sultan Nasser al-Suweidi told heads of UAE banks, according to the daily.
“The key question is that banks change terms of their banking facilities in agreements…and of course, as you know that borrowing is the basis for growth and prosperity of the banking business, therefore, I would urge you to reduce interest rate margins on loans,” he told bankers on Sunday.
Deposits in the OPEC member’s banking system stood at 1.105 trillion dirhams ($301 billion) in March, up 5.3 per cent since the turmoil in the Arab world started in December, central bank data showed.
However, UAE private sector credit was up only 2.0 per cent year-on-year in February, a second monthly rise in a row following at least 13 consecutive months of declines. It showed annual growth rates of above 50 per cent at the height of the oil and property boom in 2008.
UAE interbank offered rates have been falling gradually as liquidity increased and sentiment improved after September’s Dubai World $25 billion debt restructuring.
The three-month benchmark, based on quotes from dozen of banks, was fixed at 1.7775 per cent on Monday, the lowest level since August 2004, but still well above the Saudi benchmark at 0.7113 per cent .
Saif Hadef al-Shamsi, senior executive director at the central bank’s treasury department, said after the closed-door meeting with bankers that he expected EIBOR rates to go lower in the future, reiterating his comments earlier this month. ($1=3.673 UAE Dirhams) (Reporting by Martin Dokoupil; Editing by Kim Coghill)

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