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29 March 2024

Central Bank issues Dh3.5bn Islamic CDs

Yield on CDs is almost equivalent to conventional CDs issued by the Central Bank (FILE)

Published
By Staff

The UAE Central Bank has issued Dh3.5 billion worth of Islamic certificates of deposits (CDs) for Shariah-compliant banks in the UAE to create new investment tools and keep those banks away from the foreign markets, according to a senior official at the Central Bank.

Yield on those CDs is almost equivalent to conventional CDs issued by the central bank to the country’s 51 banks which include 28 foreign units, said Hadef Al Shamsi, executive director of the treasury department.
“The value of Islamic CDs issued by the central bank to Islamic banks in the country has reached Dh3.5 billion,” he told Al Khaleej newspaper.

“These CDs are open to all banks operating in the UAE, including conventional and Islamic banks…as for Islamic banks, they will be able to improve management of their liquidity and I think these CDs constitute a major step towards the development of Islamic banking in the UAE.”

The Central Bank said last month it had started issuing the country’s first Islamic (CDs) as part of a plan to create a new investment tool for Shariah-compliant banks in the country, the second largest Arab economy. The Central Bank said it held an auction to sell one-week and 12-month CDs on Wednesday, adding that they are based on Murabaha, which is widely practiced by Islamic banks worldwide as an alternative to interest-bearing deposits.

In an earlier statement, it said the new CDs would be issued in dirham, US dollar and euro and their maturity date would range between one week and five years.

Al Shamsi said earlier that Islamic CDs are intended to absorb excess liquidity in Islamic banks in the country and allow them to invest such liquidity in dirham in the local market “instead of turning abroad to invest in foreign currency.”He said the Central Bank expects to raise Dh10 billion within a year of offering Islamic CDs, which are unlikely to be based on interest as it is prohibited in Islam on the grounds it amounts to usury.