The Central Bank's emergency measures to ease a credit crunch in the UAE appear to be having a limited effect - at least if the interbank lending rate is any guide.
Rather than declining after the Central Bank's intervention, as had been hoped, interbank lending rates rose.
Most observers think that few, if any, banks have taken advantage of the emergency lending facility. "The package was not as generous as people had thought when the original announcement was made," said Mushtaq Khan, an economist at Citigroup.
As long as banks worry that their peers may suffer from serious problems, they will probably continue to withhold funds from each other. "It's not yet clear whether the problem is... something the Central Bank can solve by simply adding liquidity, or whether there is a deeper malaise afflicting the market," said Ala'a al Yousuf, the chief economist at Gulf Finance House. "These things can cause a domino effect. If there is stress in the credit market, then the weakest link will give first, and then the next weakest link and so on. We don't know where the weakest link is until the system is stressed out. Then we'll find out," he said.
Bank lending rates throughout the Gulf shot up today, with the Emirates interbank offer rate (Eibor) breaking four per cent for the first time since January, hitting 4.19 per cent, compared with 3.96 per cent on Sunday. In Saudi Arabia, rates hit 4.06, another high since January.
Last week, the Federal Government took special measures to ease a liquidity squeeze by injecting Dh50 billion (US$13.6bn) into the local money market. On Sunday and yesterday, the central bank of Kuwait followed suit, extending loans to local banks on a case-by-case basis and tailoring them to the banks' needs, according to an official at a large Kuwaiti bank.
The Kuwait central bank is understood to be asking for no collateral to back up the loans, which range in length from overnight to one month.
The size and the interest rate has been at the discretion of the central bank, which in some cases has charged a rate of two per cent interest for overnight loans, and four per cent for one-month loans. The central bank of Kuwait could not be reached for comment.
Late last Thursday, the UAE Central Bank offered to lend local banks an amount equivalent to their reserve requirement, while charging them three per cent interest above the current Central Bank repo rate, which stands at two per cent today.
The repo rate is the discount rate at which a central bank repurchases government securities from the commercial banks. The Central Bank declined to say how many banks had taken advantage of the offer.
"I was a bit surprised by Kuwait," said Mr Khan. "Not too long ago, they seemed determined to make a concerted effort to keep things tighter. Now, suddenly it seems they're injecting money into the market."
Regarding the UAE, Mr Khan said: "I get the sense that banks have not availed themselves of the offer from the Central Bank last week."
Banks and financial markets in the Gulf are likely to close for three days today to celebrate the Eid al Fitr holiday. Analysts are calling the timing of the holiday fortuitous, while wondering what effect this apparent lack of lending will have on the economy.
"It will give market participants some time to understand the complexities of the bailout transaction and the implications, if any, that the entire crisis may have for the region," said Imran Ahmed, the managing director of asset management at Mashreqbank in Dubai. "It's sort of like when you receive an e-mail: it's often better to sleep on it and send something out the next day, rather than writing something in the heat of the moment that you'll later regret," he said.
@Email:tpantin@thenational.ae
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Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
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MATCH INFO
Uefa Champions League final:
Who: Real Madrid v Liverpool
Where: NSC Olimpiyskiy Stadium, Kiev, Ukraine
When: Saturday, May 26, 10.45pm (UAE)
TV: Match on BeIN Sports
Israel Palestine on Swedish TV 1958-1989
Director: Goran Hugo Olsson
Rating: 5/5
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Racecard:
2.30pm: Hamdan bin Rashid Al Maktoun Emirates Breeders Society Challenge; Conditions (PA); Dh40,000; 1,600m
3pm: Handicap; Dh80,000; 1,800m
3.30pm: Jebel Ali Mile Prep Rated Conditions; Dh110,000; 1,600m
4pm: Handicap; Dh95,000; 1,950m
4.30pm: Maiden; Dh65,000; 1,400m
5pm: Handicap; Dh85,000; 1,200m
In-demand jobs and monthly salaries
- Technology expert in robotics and automation: Dh20,000 to Dh40,000
- Energy engineer: Dh25,000 to Dh30,000
- Production engineer: Dh30,000 to Dh40,000
- Data-driven supply chain management professional: Dh30,000 to Dh50,000
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How to protect yourself when air quality drops
Install an air filter in your home.
Close your windows and turn on the AC.
Shower or bath after being outside.
Wear a face mask.
Stay indoors when conditions are particularly poor.
If driving, turn your engine off when stationary.
Dubai works towards better air quality by 2021
Dubai is on a mission to record good air quality for 90 per cent of the year – up from 86 per cent annually today – by 2021.
The municipality plans to have seven mobile air-monitoring stations by 2020 to capture more accurate data in hourly and daily trends of pollution.
These will be on the Palm Jumeirah, Al Qusais, Muhaisnah, Rashidiyah, Al Wasl, Al Quoz and Dubai Investment Park.
“It will allow real-time responding for emergency cases,” said Khaldoon Al Daraji, first environment safety officer at the municipality.
“We’re in a good position except for the cases that are out of our hands, such as sandstorms.
“Sandstorms are our main concern because the UAE is just a receiver.
“The hotspots are Iran, Saudi Arabia and southern Iraq, but we’re working hard with the region to reduce the cycle of sandstorm generation.”
Mr Al Daraji said monitoring as it stood covered 47 per cent of Dubai.
There are 12 fixed stations in the emirate, but Dubai also receives information from monitors belonging to other entities.
“There are 25 stations in total,” Mr Al Daraji said.
“We added new technology and equipment used for the first time for the detection of heavy metals.
“A hundred parameters can be detected but we want to expand it to make sure that the data captured can allow a baseline study in some areas to ensure they are well positioned.”
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Where: NSC Olimpiyskiy Stadium, Kiev, Ukraine
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TV: Match on BeIN Sports
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