News
Eibor at 2.46% shows normalcy in liquidity
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The three-month Emirates Inter Bank Offered Rate (Eibor) has eased to 2.46 per cent, a fall of 86 basis points, the biggest fall in the region, reflecting return of normalcy in liquidity conditions, Standard Chartered said yesterday.
Economists are expecting easier access to credit with advances to deposit ratios in banks getting closer to regulatory limit of 100 per cent.
In its recent report on the GCC economy, Standard Chartered said recent market metrics have shown a marked shift in confidence, institutional investors were returning and, at the same time, real estate market had started to see signs of a stabilising, putting GCC on the forefront of Mena economic engine.
Decline in inter-bank rates was not only restricted to the UAE, but also to other parts across the region. Three-month inter-bank rates in Bahrain eased to 1.67 per cent, falling 52bps, as on June 7; Saudi's Saibor also witnessed a fall of 32bps to 0.83 per cent since April 1 this year.
"Across the region, liquidity conditions have normalised, as reflected in lower interbank rates," said Philippe Dauba-Pantanacce, Senior Economist, Mena, Standard Chartered.
After touching a peak of around 4.78 in November last year, three-month Eibor eased to around 4.3 at the beginning of this year and to further 3.61 in February.
In spite of the ease, the "high" inter-bank rate was seen as indication of a shortage of money in the system with economists emphasising on the need for measures to boost liquidity in the system.
The inter-bank lending rate in the UAE declined to 3.29 per cent at the end of March, and was around 2. 53 per cent at the end of April and 2.47 at May-end.
"On the retail front, we see easier access to credit, evidenced by improving real-estate sector financing conditions. The recent decline in lending has allowed the banking system – especially in the UAE – to revert to healthier and more sustainable advance-to-deposit (A/D) ratios. Recent central bank data shows that most UAE banks' A/D ratios are now below or near the 100 per cent of regulatory limit."
Standard Chartered said the "Gulf Cooperation Council (GCC) has returned to the front lines of economic commentary recently, not only because of recent setbacks to its long-planned common currency project, but also because of to a return of confidence and international investors to the region, thanks largely to the recent upward trend in oil prices."
Oil, the main driver of GCC countries, has once again started to see an upward movement in prices and the trend has continued since February.
Taking $42 per barrel as the breakeven oil price, Standard Chartered estimates that the GCC will have already accumulated close to $30 billion (Dh110.16bn) of "extra" cash in the four months from March to June.
The extra cash generated for UAE alone is estimated to around $10bn, the bank said, adding: "This happens to be exactly the same amount as the first Dubai bond issuance which was deemed massive at the time."
Expecting oil prices to reach $75 by the end of the year, the report said the "total extra windfall" for the GCC above the breakeven point at that price would be $114bn, which is bigger than the size of the entire GCC debt market prior to the current economic crisis.
Participation of institutional investors in the Dubai Financial Market grew by 20 per cent in May alone.
"International investors have played a growing role in the rebound, signifying their renewed appetite for the region," said Pantanacce.
The high number of bond issuances and their success has been another tangible sign of a marked return of investor confidence in the region, said Standard Chartered, adding "indeed a few weeks back it would have been difficult to imagine that so much debt could be absorbed by the markets".
The researchers also pointed out that Credit Default Swap (CDS) levels in Dubai, that had widened to 1,000bps mark in February and now stand at half that level, 510bps as of June 5 while the Abu Dhabi CDS is at 250 bps.
"This has allowed market players to tap the bond market at levels that were unthinkable until recently. In April, Abu Dhabi issued $3bn of bonds with a four per cent coupon on the five-year tenor, and the subscription was a huge success.
"Qatar's issuance of a similar $3bn bond was similarly well received. Bahrain has also issued bonds recently, and has announced a new programme including an imminent Islamic bond issuance for an amount just above $1bn, while Kuwait is mulling a $5.7bn issuance.
"Corporate bond issuance has also seen a boom in recent weeks. This appears to be continuing unabated, to the point where one wonders how much the market will be able to absorb."
Economists are expecting easier access to credit with advances to deposit ratios in banks getting closer to regulatory limit of 100 per cent.
In its recent report on the GCC economy, Standard Chartered said recent market metrics have shown a marked shift in confidence, institutional investors were returning and, at the same time, real estate market had started to see signs of a stabilising, putting GCC on the forefront of Mena economic engine.
Decline in inter-bank rates was not only restricted to the UAE, but also to other parts across the region. Three-month inter-bank rates in Bahrain eased to 1.67 per cent, falling 52bps, as on June 7; Saudi's Saibor also witnessed a fall of 32bps to 0.83 per cent since April 1 this year.
"Across the region, liquidity conditions have normalised, as reflected in lower interbank rates," said Philippe Dauba-Pantanacce, Senior Economist, Mena, Standard Chartered.
After touching a peak of around 4.78 in November last year, three-month Eibor eased to around 4.3 at the beginning of this year and to further 3.61 in February.
In spite of the ease, the "high" inter-bank rate was seen as indication of a shortage of money in the system with economists emphasising on the need for measures to boost liquidity in the system.
The inter-bank lending rate in the UAE declined to 3.29 per cent at the end of March, and was around 2. 53 per cent at the end of April and 2.47 at May-end.
"On the retail front, we see easier access to credit, evidenced by improving real-estate sector financing conditions. The recent decline in lending has allowed the banking system – especially in the UAE – to revert to healthier and more sustainable advance-to-deposit (A/D) ratios. Recent central bank data shows that most UAE banks' A/D ratios are now below or near the 100 per cent of regulatory limit."
Standard Chartered said the "Gulf Cooperation Council (GCC) has returned to the front lines of economic commentary recently, not only because of recent setbacks to its long-planned common currency project, but also because of to a return of confidence and international investors to the region, thanks largely to the recent upward trend in oil prices."
Oil, the main driver of GCC countries, has once again started to see an upward movement in prices and the trend has continued since February.
Taking $42 per barrel as the breakeven oil price, Standard Chartered estimates that the GCC will have already accumulated close to $30 billion (Dh110.16bn) of "extra" cash in the four months from March to June.
The extra cash generated for UAE alone is estimated to around $10bn, the bank said, adding: "This happens to be exactly the same amount as the first Dubai bond issuance which was deemed massive at the time."
Expecting oil prices to reach $75 by the end of the year, the report said the "total extra windfall" for the GCC above the breakeven point at that price would be $114bn, which is bigger than the size of the entire GCC debt market prior to the current economic crisis.
Participation of institutional investors in the Dubai Financial Market grew by 20 per cent in May alone.
"International investors have played a growing role in the rebound, signifying their renewed appetite for the region," said Pantanacce.
The high number of bond issuances and their success has been another tangible sign of a marked return of investor confidence in the region, said Standard Chartered, adding "indeed a few weeks back it would have been difficult to imagine that so much debt could be absorbed by the markets".
The researchers also pointed out that Credit Default Swap (CDS) levels in Dubai, that had widened to 1,000bps mark in February and now stand at half that level, 510bps as of June 5 while the Abu Dhabi CDS is at 250 bps.
"This has allowed market players to tap the bond market at levels that were unthinkable until recently. In April, Abu Dhabi issued $3bn of bonds with a four per cent coupon on the five-year tenor, and the subscription was a huge success.
"Qatar's issuance of a similar $3bn bond was similarly well received. Bahrain has also issued bonds recently, and has announced a new programme including an imminent Islamic bond issuance for an amount just above $1bn, while Kuwait is mulling a $5.7bn issuance.
"Corporate bond issuance has also seen a boom in recent weeks. This appears to be continuing unabated, to the point where one wonders how much the market will be able to absorb."
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