Borrowing limits are raised for Islamic lenders

The UAE central bank said yesterday it would allow Islamic banks to borrow up to $200 million (Dh734m) per day against their certificates of deposit (CDs) to help them cope with a dollar shortage.

In March, the central bank started allowing commercial banks in the world's fifth-largest oil exporter to borrow dollars for as long as three months in a response to the global credit crisis.

Islamic banks, whose borrowing needs are different from the commercial banking sector because they cannot pay or receive interest, would also be able to borrow dollars from the central bank, it said in a statement on its website on yesterday.

Dollar reserves at the central bank have been building up as people hold more of their assets in dirhams on speculation the country will revalue its currency.

The central bank said in March the facility was designed to help banks meet their foreign currency needs "in view of the current credit crisis".

Banks can borrow dollars for periods of one-week, one-month or three-months, the central bank said in statement.

It did not say how much it would charge Islamic banks for the loans. The central bank lends dollars to commercial banks at 2.75 per cent for three-month CDs.

"Banks who use this facility will not be able to sell dollars to the central bank during the period of usage," the central bank said.

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