UAE banks need no more support: official

UAE banks do not need any more cash injections following an improvement in their liquidity that was severely hit by the global financial crisis, the director general of the Ministry of Finance said in remarks published on Monday.

Younus Khoury also said the Ministry was pushing ahead with landmark plans to issue a federal public debt law that will allow government offices to raise funds through bonds to finance development projects in the country.

Khoury was asked by local Arabic language dailies on the remaining Dh20 billion in government deposit intended to pump further liquidity into the UAE’s banking sector, which controls the largest asset base in the Arab world.

“This sum is still deposited with the Finance Ministry…for the time being, we do not see any need for further financial support to this sector which we believe has overcome its liquidity problem,” Khoury said.

He said a Finance Ministry committee set up to evaluate the banking sector’s position is meeting regularly, adding that it is authorised to propose an extension of the bank deposit guarantee law issued recently.

The UAE’s 23 national banks and 28 foreign units suffered from one of their worst liquidity crises in the aftermath of the 2008 global downturn, prompting the Central Bank and the Finance Ministry to allocate a total Dh120 billion in emergency support for the banks, most of which have benefited from the funds.

The facility and other measures taken by the Central Bank largely eased the liquidity problem and put the banks back on track towards recovery.

Central Bank figures showed deposits with the 51 banks swelled to their highest ever level of around Dh1,013 billion at the end of September. But banks have remained tight in lending because of their exposure to regional default problems and a sharp slowdown in private sector borrowing.

Khoury said plans by the Ministry of Finance to issue the long-awaited public debt law were under way and a relevant department could see light.

“The Ministry is now forging the right frameworks and procedures to release the public debt law…setting up a public debt office is part of these procedures.”

The public debt law will allow the federal government to issue sovereign bonds for the first time to fund local projects and experts believe such bonds will largely benefit the banking sector and lure its investments into the domestic market.

While the government has not provided details of the bond issue or whether the funds would be raised locally or internationally, the plan will also ensure a less costly financing tool for the UAE and boost national savings, the experts said.

In previous statements, Khoury said legislation would be enforced along with the public debt law to specify where the raised funds would be spent

He also said the federal government had not yet determined the timeframe or the size of the issue of such bonds. He added the Ministry would handle the bond issue on behalf of the government and would seek sovereign rating.

Abu Dhabi, the main oil producer in the UAE, raised $3 billion (Dh11 billion) last year as part of a $10 billion (Dh37 billion) bond programme planned over two years. Dubai also sold $10 billion of bonds to the Central Bank and raised another $10 billion a few months later.