UAE sets terms for emergency cash injections

Dubai: The UAE set the interest rate on the first tranche of a 70 billion dirham emergency package for banks at the rate for 5-year U.S. treasury bonds plus 120 basis points or 4 per cent, whichever is higher.

The finance ministry warned banks of penalties if they used the funds for speculation instead of providing loans locally. It did not say what the envisaged penalties were, the official WAM news agency said on Thursday

Banks will be required to make interest payments every three months, it said.

Banks should also draw up plans to weather slower credit growth, it said, citing the ministry statement.

"Banks should focus on activities that support the local banking sector and the national economy and for entering speculation at local or foreign markets," WAM said, citing a statement.

"Banks should actively take part in the interbank market, particularly (focusing on) deposits to guarantee the flow of liquidity at the banking system and to provide loans to small and medium projects at reasonable prices," it added.