Sunday, August 1, 2010

The UAE Central Bank has set up a new liquidity facility for commercial banks, it said yesterday.

“Central bank has issued a notice to UAE banks and bra-nches of foreign banks operating in the UAE, making available to them a special additional liquidity facility linked to their current accounts at the central bank,” it said.

The bank’s move comes after Dubai World announced that it had asked for a suspension in debt payments for six months, sparking fears of exposure to possible defaults among UAE and global banks.

The central bank did not give more details, only saying that it stood behind UAE banks and branches of foreign banks operating in the UAE, adding the country’s banking system was more sound and liquid than a year ago.

“It is important because the main concern is that there might be some panic behaviour by depositors in Dubai and by bankers who want to take deposits out of the banking system,” said John Sfakianakis, chief economist at Banque Saudi Fransi-Credit Agricole Group in Riyadh.

“This will support the liquidity and the overall soundness of the banking system in the UAE and especially in Dubai.

The central bank is sending a strong message to everyone that they are providing ample liquidity and the guarantee to banks in the UAE,” he said.

Dubai World had $59 billion of liabilities as of August, a large proportion of Dubai’s total debt of $80 billion and repayment of Nakheel’s $3.5 billion worth of Islamic bonds, which were originally due to mature on December 14, was widely expected by the market to be met.