Eibor hits 14-month low
UAE interbank rates fell to at least 14-month lows on Thursday, reflecting improved liquidity in the banking sector and a drive by the central bank to encourage lower rates and spur lending.
Traders said the Central Bank called a meeting of bank treasurers in recent days to encourage them to set lower interbank rates to try and boost lending which has been slow to pick up.
"The Central Bank has asked treasurers to come and see them at a group meeting, and the message was that Eibor rates need to be lower. Some of the banks have kept Eibor rates quite high," a trader at a UAE bank said.
The benchmark UAE one-month offered rate, the interest rate banks charge each other for loans, fell to 1.48000 per cent at the central bank's fixing on Thursday, the lowest in 14 months, or as far back as the data goes.
The rate was still well above the Saudi benchmark at 0.35750 per cent. Both economies have their currencies pegged to the US dollar.
Debt crisis and a flood of dollar liquidity prompted the central bank to apply pressure on banks to cut rates, banking sources told Reuters.
"The Central Bank is driving this effect. They are suggesting a few changes in regulatory ratio calculations of loans and deposits," a trader at a local bank said. "They (interbank rates) might fall further, it all depends where the discussion with the Central Bank goes."
"They have suggested that maybe a certain tenor of interbank deposits might be considered as customer deposits. The moment you suggest such changes, obviously Eibor will start falling, and that is what is going on," he said.
Some analysts, who did not wish to be named, said a rise in foreign deposits in the UAE due to political unrest in the region had also pushed interbank rates lower.
Eibor rates are based on quotes provided by a dozen banks, which include Dubai's largest bank Emirates NBD and the National Bank of Abu Dhabi, the UAE's largest lender by market value.
Deposits at the UAE Central Bank stood at Dh50.6 billion ($13.8 billion) in February, down from Dh73.6 billion a year earlier, central bank data showed last month.
Although UAE banks have been flush with cash in recent months, lending has been slow to pick up despite improved business sentiment after state-owned Dubai World reached a deal to restructure $25 billion in September.
Commercial banks' loans and advances rose by 3.1 per cent year-on-year in February and were up 2.8 per cent from the previous month, data also showed.
"The falling interbank rates are a reflection of the improved liquidity environment. Nonetheless, we still expect to see weak credit growth with banks remaining concerned over high consumer and corporate debt levels," said Monica Malik, chief economist at EFG-Hermes in Dubai.
Interbank rates have been falling gradually in the past year. In March last year, the central Bank already said it was looking at how to reduce interbank offered rates and planned to meet with commercial banks on a regular basis.
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