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UAE cbank push helps drive down interbank rates-source - ASHARQ AL-AWSAT English Archive
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DUBAI, (Reuters) – United Arab Emirates interbank rates fell to at least 14-month lows on Thursday, reflecting improved liquidity in the banking sector and a drive by the central bank to encourage lower rates and spur lending.

Traders said the central bank called a meeting of bank treasurers in recent days to encourage them to set lower interbank rates to try and boost lending which has been slow to pick up.

“The central bank has asked treasurers to come and see them at a group meeting, and the message was that EIBOR rates need to be lower. Some of the banks have kept EIBOR rates quite high,” a trader at a UAE bank said.

The benchmark UAE one-month offered rate, the interest rate banks charge each other for loans, fell to 1.48000 percent at the central bank’s fixing on Thursday, the lowest in 14 months, or as far back as the data goes.

The rate was still well above the Saudi benchmark at 0.35750 percent. Both economies have their currencies pegged to the U.S. dollar.

Dubai’s debt restructuring deal last September and a flood of dollar liquidity prompted the central bank to apply pressure on banks to cut rates, banking sources told Reuters.

“The central bank is driving this effect. They are suggesting a few changes in regulatory ratio calculations of loans and deposits,” a trader at a local bank said. “They (interbank rates) might fall further, it all depends where the discussion with the central bank goes.”

“They have suggested that maybe a certain tenor of interbank deposits might be considered as customer deposits. The moment you suggest such changes, obviously EIBOR will start falling, and that is what is going on,” he said.

Some analysts, who did not wish to be named, said a rise in foreign deposits in the UAE due to political unrest in the region had also pushed interbank rates lower.

EIBOR rates are based on quotes provided by a dozen banks, which include Dubai’s largest bank Emirates and the National Bank of Abu Dhabi, the UAE’s largest lender by market value.

Deposits at the UAE central bank stood at 50.6 billion dirhams ($13.8 billion) in February, down from 73.6 billion a year earlier, central bank data showed last month.

Although UAE banks have been flush with cash in recent months, lending has been slow to pick up despite improved business sentiment after state-owned Dubai World reached a deal to restructure $25 billion in September.

Commercial banks’ loans and advances rose by 3.1 percent year-on-year in February and were up 2.8 percent from the previous month, data also showed.

“The falling interbank rates is a reflection of the improved liquidity environment. Nonetheless, we still expect to see weak credit growth with banks remaining concerned over high consumer and corporate debt levels,” said Monica Malik, chief economist at EFG-Hermes in Dubai.

Interbank rates have been falling gradually in the past year. In March last year, the central bank already said it was looking at how to reduce interbank offered rates and planned to meet with commercial banks on a regular basis.

Asharq Al-Awsat

Asharq Al-Awsat

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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