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UAE C.Bank Says Has No Exposure To Euro Debt

Only invests in AAA countries, corporates; Central bank has no gold in reserves; No big impact from euro zone crisis seen – governor; Comfortable with current loan growth rates; Basel III liquidity rules are a challenge

October 22, 2011 12:05 by



The United Arab Emirates’ central bank has no exposure to euro zone debt in its reserves and it only invests in countries and corporates rated AAA as required by law, a senior central bank official said on Friday.

Gulf Arab oil exporters such as the UAE mainly invest in dollar assets since most peg their currencies to the U.S. dollar with crude oil, priced in dollars, accounting for a majority of budget revenue.

Asked whether the UAE central bank held any euro zone debt in its reserves, Saif Hadef al-Shamsi, senior executive director at its treasury department, said: “Currently, no.”

“It is very much prescribed in a law, we only invest in AAA-strong countries,” he told reporters after a meeting of Gulf central bank governors in the UAE capital, when asked if investing in troubled European assets was an option.

Authorities in the Gulf, the world’s top oil exporting region, rarely comment on investment strategies.

Shamsi also said the central bank invested in diversified and liquid instruments: “Problem countries? No. Investments…in securities is through a careful examination, survey.”

ASSETS

The central bank’s foreign currency assets edged down to a three-month low of 199.1 billion dirhams ($54.2 billion) in June. But within that total, holdings of foreign securities rose to 86 billion dirhams in June, the highest level since at least 2007, its data show.

Asked about the central bank’s gold holdings, Shamsi said: “We do not have any gold. We used to have.

“When it was there it was available on the balance sheet. Now, it’s not there so it is not available,” he said.

The central bank held 333 million dirhams worth of gold in December 2002, the last year when gold holdings appeared on its balance sheet, according to its annual reports.

Saudi Arabia’s central bank governor told Reuters last week that the Saudi monetary authority was not interested in buying distressed or speculative assets such as troubled European debt and gold.

BANKS

UAE banks should not feel any major pain from the euro zone debt crisis, UAE central bank governor Sultan Nasser al-Suweidi told a news conference at the event on Friday.

“It should not have a big impact,” he said.

Banks in the world’s No. 4 oil exporter were hit by Dubai’s $25 billion debt restructuring last year, which followed a local property market crash and the global financial crisis. But since then, banks have been building up capital levels, which were already high by international standards, and earnings have partially recovered.

However, annual lending growth remains in the low single digits, slowing to an eight-month low of 2.2 percent in August.

“We are comfortable with rates of growth in loans and advances. A single-digit rate of loan growth is excellent for current circumstances,” Suweidi said.

He also said that although banks in the six-country Gulf Cooperation Council had high capital levels — the UAE’s Tier 1 capital level is 11 percent — liquidity rules were a major challenge for banks as they prepared to meet the new Basel III banking standards that will take effect around the world over several years from 2013. He indicated one reason was the limited choice of liquid instruments available to Gulf banks locally.

“We don’t have the same instruments as other advanced economies. So we have to build them in types and quantity, such as sukuk, bonds, Treasuries,” Suweidi said.

Basel III will require banks to hold enough cash-like instruments to withstand a month of severe fund outflows.

By Martin Dokoupil and Stanley Carvalho



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2 Comments

  1. ABC on October 23, 2011 5:07 am

    Dubai – up the creek
    In the last 2 years, the following group of people/activity has lost money big time and losing even now every day but the pity is people are living in denial – investors in real estate, trading business, banks lending to these companies, loss making government companies, large shopping malls (where foot falls is only 20%), large newly built office towers where the average occupancy rate is 30% and in Dubai one needs to have 50% occupancy level just to meet expenses. Time cut losses asap and to pack up.

     
  2. Andrew on October 23, 2011 8:57 am

    “Asked whether the UAE central bank held any euro zone debt in its reserves, Saif Hadef al-Shamsi, senior executive director at its treasury department, said: ‘Currently, no.’”

    So presumably, they did.

     

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