The Central Bank has instructed UAE banks not to liquidate mortgaged shares and collateral assets, its governor said yesterday.
"These instructions were recently issued to create stability in stock markets," Sultan Nasser Al Suwaidi said on the sidelines of a lecture by Christian Noyer, the Governor of the Bank of France.
Al Suwaidi said the liquidity situation in the UAE's banking sector was much better now than at the beginning of the international financial crisis.
"Banks have used less than 15 per cent of the Dh50 billion facility provided by the Central Bank since the beginning of the crisis."
This confirms the improvement of liquidity in daily transactions among banks, compared to the recent past, he said.
"The Central Bank is ready to pump more money into the banks to improve liquidity in case there was a need for that. It will tell banks to make extra provisioning for a possible increase in non-performing loans and defaults. However, it is still premature to talk about this issue and we have not completed the inspection of the banks yet.
"The situation in the UAE has clearly improved, but I cannot set a final date for all effects of the international financial crisis to fade from the UAE's banking sector. In any case, the drop in the loans issued, which some investors considered as restrictions on lending have started to ease gradually," Al Suwaidi said.
Replying to a question on whether the UAE is heading into recession in the current year, he said: "I do not think the UAE will see a recession. The country's economic revival depends on local and global circumstances, which are still in flux. I expect to see low one-digit economic growth this year, which cannot qualify as a recession."
Speaking about mergers among banks to face the crisis, he said: "Bank mergers are related to the need of individual banks – how beneficial the merger will be for each of the parties merging. We do not have any information on imminent mergers."
Al Suwaidi said discussions with the French side concentrated on new potential global investment opportunities. He called for the consolidation of relations between the UAE and France to improve co-operation in different fields, including asset management, insurance, research, Islamic finance and environmental finance among others.
Noyer said European governments, led by France, drew up a work plan that included three steps: provision of guarantees to re-finance banks so that they can finance the economy; application of structural reforms in accounting rules; and governments' affirmation of their readiness to intervene and support banks with capital whenever the need arose.