Same-day value dollars sold to banks

Abu Dhabi: The United Arab Emirates central bank said yesterday it had begun selling dollars to banks at the same day value in a move aimed at easing tensions in the interbank market.

The central bank previously sold dollars at spot value, meaning the deal was settled two days later in line with international norms.

The new rules would improve banks' access to dollars after the government's decision to inject emergency funds into the financial system to ease the effects of the global credit squeeze left the banks flush with dirhams.

"The UAE Central Bank will sell dollars for the same day to banks on a request basis ... Value today dollars will be sold until 11am each day and no request will be entertained beyond 11am," a Central Bank directive said. "Further, normal spot sales will continue as per current guidelines which used to be the case."

The government last month began adding Dh70 billion ($19.1 billion) to the banking system to help ease a liquidity crunch that had pushed up interbank rates.

The cash boost came on top of an earlier Dh50 billion in emergency funds.

"In the remaining weeks, there could be more injections of dirhams into the country's banking system, so banks would have additional dirhams," said a senior treasury officer at Abu Dhabi Commercial Bank.

Another Abu Dhabi-based banker said: "The move will help banks that are short on dollars to cover their positions. It is a positive development. It adds to the various options and helps ease the option on covering."

Support package: Fiscal boost of Dh25b

The United Arab Emirates finance ministry will make available Dh25 billion ($6.81 billion) to banks next week as the second part of a support package, the official news agency WAM said yesterday.

UAE banks have borrowed 80 per cent of the first Dh25 billion liquidity package allocated last month, a newspaper reported on Wednesday citing an official from a committee in charge of managing the impact of the global credit crisis.

The UAE government said last month it would inject Dh70 billion into the banking system and made the first tranche available to the banks in late October.

The move is aimed at easing tight lending conditions amid the global financial crisis and mirrors a similar move by Saudi Arabia.

- Reuters