UAE ready for Islamic CD auctions

The UAE central bank is ready to hold certificate of deposit auctions for Islamic banks, an official said on Monday.

"We have not issued a single one (CD) yet, but the system is ready for Islamic banks to come to the central bank to purchase Islamic CDs," said Seif Al-Shamsi, executive director for the treasury department at the UAE central bank.

He said there was a need to improve liquidity regulation for banks in the region, which were hit hard by the global financial crisis.

"Here in the UAE, we feel there is a need to improve liquidity regulations and be in line with the proposed liquidity framework," said Al Shamsi.

"As a result a liquidity regulation committee has been established here."

The central bank is considering a wide range of regulations to improve efficiency of the banking sector.
Last month, Central Bank Governor Sultan bin Nasser al-Suwaidi said the UAE plans regulations to contain credit growth.

The amount of loans disbursed by banks in 2009 grew by four per cent and the growth is predicted to remain around the same level this year.

At the height of the liquidity boom, between 2004 and 2008, the country experienced average credit expansion in excess of 30 per cent. This fell to single-digit growth following the global liquidity crisis. “We need to control this kind of fluctuation in the credit markets,” Al Suwaidi said.

Al Shamsi said the UAE is not considering depegging its currency from the dollar despite its recent weakness.

"At this moment and this time we're not considering that (de-pegging). The reasons that we have are that oil is priced with the dollar, our trade partners are mosty dollar-related and more than 50 percent of our trade partners are dollar related," he said.

"At the present time we don't see this (de-pegging) especially as there is no inflation," he said.
Al Shamsi also said that there were no worries over dollar weakness due to low inflation, and that he expected interbank rates to edge lower.