Following on its September promise to make $13.6 billion available to banks, the United Arab Emirates said yesterday that it would guarantee bank deposits and interbank lending operations between domestic banks and would stand ready to “inject sufficient liquidity” into the financial system if needed. The guarantee of savings and deposits covers most retail banks operating in the UAE, including those used by foreign residents. Last Wednesday, the UAE central bank followed the Fed and European central banks and slashed its lending rate to banks by two points to 3.0 percent and its benchmark rate by 0.5 point to 1.5 percent in a move to raise market liquidity. The EUA’s Central bank board chairman said on Wednesday that commercial bank assets amount to 1.3 trillion dirhams ($354 billion) and the capital reserve is at 13 percent. He said total mortgage lending by banks in the UAE does not exceed 11 percent of total assets and 18 percent of total deposits.
Saudi Arabia joined the UAE in its promise of financial support to domestic banks. Saudi Arabia, which pegs its currency to the dollar, also followed last week’s coordinated interest-rate cut, reducing the kingdom’s repurchase rate by 0.5 point. Mohammed Al-Jasser, deputy governor at the Saudi Arabian Monetary Agency, announced that a $40 billion lending facility was available to the kingdom’s banks if funds are needed.
While both nations have stated that their banking systems are adequately capitalized and relatively unexposed to the deteriorating asset problems that have been plaguing U.S. and European banks and investment firms, Gulf stock exchanges have experienced sharp declines this month, mainly in the real estate sector. Prices for Dubai credit-default swaps have risen sharply in recent weeks, which may be evidence of debt-market investor concern on its ability to pay off its immense foreign debt. Dubai’s local stock exchange said Sunday it would tighten the daily trading band on shares to 10% from 15%.
Following these developments, stock indexes rose markedly today in the Gulf Arab states on news that Qatar planned to purchase $5.3 billion worth of shares in its banks to shore up their capital and increase investor confidence. It was reported that the Qatar Investment Authority, the Gulf Arab state’s sovereign wealth fund, announced today that it will buy 10-20 percent of banks’ listed capital on the Doha bourse based on Sunday’s closing share prices. As a result, Dubai’s main index showed a 10.5 percent gain and Qatar’s leading index rose 8.5 percent.