Post by Sohrat on Jun 29, 2009 23:57:07 GMT 4
The UAE has announced plans on 29 June 2009 to tackle rising liquidity issues by adding a gilt edged guarantee from the government, thereby making bank bonds, medium-term notes, syndicated loans and commercial paper more attractive to international and local investors.
The UAE financial sector faces a shortage of funds and underlying conditions are expected to worsen with the number of non-performing loans continue to rise into 2010.
Property prices have already fallen by 50 percent from peaks in some areas and there may be another 20 percent to fall, Deutsche Bank AG said on June 10, with some investors are just walking away.
Meanwhile international sources of financing have dried up with foreign lending institutions becoming more protective over their own debt to asset ratios.
As a result, the gap between commercial bank loans and deposits in the UAE rose to 110 billion dirhams ($29 billion) in March, before falling to 91 billion dirhams.
The UAE hopes a government guarantee may open doors for banks seeking more financing through debt - internationally and locally - and help reduce the gap between loans and deposits.
With a better debt to asset ratio UAE banks would also be able to kick start lending, providing a stimulus to the slowing economy.
“Although it is not really a monetary policy instrument it can be viewed as an instrument that would enable the expansion of credit,” UAE Central Bank Governor Sultan bin Nasser al-Suwaidi told news agency Bloomberg on Sunday.
Government backed bank bonds would carry a significantly lower risk premium, making them less expensive for the banks to offer.
Raising financing through debt across the Gulf Cooperation Council (GCC) has become onerous since the onslaught of the global financial crisis.
UAE based Aldar was one of the first regional companies in the region to seek finance through the bond markets this year. Its $1.25 billion issue in May offered a yield of 8.75 percent and is now trading at 9.5 percent.
In Saudi, the pricing of a $1.33 billion Islamic bond issue in June by Saudi Electricity was 160 basis points over the Saudi interbank rate, a sharp rise compared to Saudi Electricity's maiden issue of 5 billion riyals in 2007 which was priced at 45 bps above SAIBOR.
In an email to Bloomberg Simon Williams, chief regional economist at HSBC Middle East in Dubai said: “We’ll need to see the details, but it sounds like a very significant broadening of already extensive government support for the local banking sector."
According to Suwaidi, if the law is passed this week it could be put into action within the next four weeks.
The UAE financial sector faces a shortage of funds and underlying conditions are expected to worsen with the number of non-performing loans continue to rise into 2010.
Property prices have already fallen by 50 percent from peaks in some areas and there may be another 20 percent to fall, Deutsche Bank AG said on June 10, with some investors are just walking away.
Meanwhile international sources of financing have dried up with foreign lending institutions becoming more protective over their own debt to asset ratios.
As a result, the gap between commercial bank loans and deposits in the UAE rose to 110 billion dirhams ($29 billion) in March, before falling to 91 billion dirhams.
The UAE hopes a government guarantee may open doors for banks seeking more financing through debt - internationally and locally - and help reduce the gap between loans and deposits.
With a better debt to asset ratio UAE banks would also be able to kick start lending, providing a stimulus to the slowing economy.
“Although it is not really a monetary policy instrument it can be viewed as an instrument that would enable the expansion of credit,” UAE Central Bank Governor Sultan bin Nasser al-Suwaidi told news agency Bloomberg on Sunday.
Government backed bank bonds would carry a significantly lower risk premium, making them less expensive for the banks to offer.
Raising financing through debt across the Gulf Cooperation Council (GCC) has become onerous since the onslaught of the global financial crisis.
UAE based Aldar was one of the first regional companies in the region to seek finance through the bond markets this year. Its $1.25 billion issue in May offered a yield of 8.75 percent and is now trading at 9.5 percent.
In Saudi, the pricing of a $1.33 billion Islamic bond issue in June by Saudi Electricity was 160 basis points over the Saudi interbank rate, a sharp rise compared to Saudi Electricity's maiden issue of 5 billion riyals in 2007 which was priced at 45 bps above SAIBOR.
In an email to Bloomberg Simon Williams, chief regional economist at HSBC Middle East in Dubai said: “We’ll need to see the details, but it sounds like a very significant broadening of already extensive government support for the local banking sector."
According to Suwaidi, if the law is passed this week it could be put into action within the next four weeks.