Banks urged to cut interest rates

UAE Central Bank governor has urged banks to reduce their interest rates on loans to local businesses in line with the latter’s reduced revenues as high rates would further burden their bottom lines, which isn’t in the best interest of the banks, he said. “Banks are accumulating high profits, in many cases above the cost of deposits while lending to this sector,” Sultan bin Nasser Al Suwaidi has been quoted by Arabic daily Al Khaleej. Al Suwaidi, who was speaking at the second consultation meeting of this year with the chief executives of banks operating in the UAE, said: “At this meeting, I would like to point out that borrowers and especially merchants/businessmen are complaining about high interest rate margins on their financial budgets.” He added that this was happening despite high liquidity in the banks and a steady decline in the cost of deposits over the last year. “Banks should take into account the decline in revenues and profits of the business sector during the past two years, amid heightened competition and the shrinking size of the existing projects when compared with those before the global crisis,” he said. Highlighting the healthy growth of the banking sector in the country, Al Suwaidi said: “Liquidity in the banking sector is considered excellent, and this is an indication that the banking environment in UAE is good.” Stressing the need to soften up on lending to businesses, he said: “The borrowers are the foundation of our growth, and to make them pay high interest rates will not be in the interest of banks in the long term.” The comments come close on the heels of a length meeting between business representatives and the Central Bank last week at the Chamber of Commerce and Industry of Abu Dhabi. Interestingly, many top banking executives seemed to agree with Suwaidi. Mohammed Jamil Berro, CEO of Al Hilal Bank, said the Central Bank’s call to reduce interest rates is realistic. He added that call is in the interest of the banks themselves if they were really keen to retain customers amid fierce competition in the market.