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UAE takes measures to shore up financial system

(Xinhua)
Updated: 2008-10-12 21:42

ABU DHABI -- The United Arab Emirates (UAE) government Sunday approved a series of preventive measures to shore up its financial system and to avert any possible breakdown, the official Emirates News Agency reported.

The internal measures were approved at a meeting of the UAE cabinet headed by the Vice President and Prime Minister Sheikh Mohammed bin Rashid Al Maktoum, according to the report.

Under the approval, the UAE government will ensure that no UAE national bank will be exposed to credit risks, guarantee deposits and savings in all national banks.

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The government will also guarantee all inter-bank lending operations between banks operating in the Gulf country and inject sufficient liquidity in the financial system if and when necessary.

"We are determined to protect our financial and banking system out of keenness to preserve the interests of our country and people," Sheikh Mohammed was quoted as saying.

The UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi, who was currently in Washington to attend the annual meetings of the International Monetary Fund (IMF) and the World Bank, said on Sunday that national and foreign banks in the UAE enjoy a strong financial position.

Suwaidi said in a statement that the majority of assets of banks operating in the UAE are in the country and their parties are known and sound, contrary to other economies where most parties in these countries are unknown.

In addition, the capital and reserves of banks operating in the UAE represent 11.02 percent of the total bank assets, which is considered high according to Basel II standards, the official added.

The UAE Central Bank announced on Wednesday a two-percentage- point cut in its lending rate to 3 percent in a bid to boost liquidity of local banks.

The bank also lowered the rate on its re-purchase of certificate of deposit (REPO) from 2 percent to 1.5 percent with effect from Wednesday.

On September 22,  the central bank announced that it would set up an emergency lending facility worth 50 billion dirhams (US$13.6 billion) for banks operating in the country.

Despite all the moves aimed to boost local banks' liquidity, the cost for banks to borrow money from one another has been on the rise.

The one-month Emirates Interbank Offered Rate rose to 4.63 percent on Sunday from 3.64 percent on September 23.