Abu Dhabi: The UAE could witness a slowdown in business due to the global financial and economic crisis, said Sultan Bin Nasser Al Suwaidi, UAE Central Bank Governor, during a financial forum in Kuwait.
Al Suwaidi stressed that the UAE banks' exposure to sovereign and private sector debt in Europe was "really small" and voiced his happiness with the UAE's current monetary policy rate of 1 per cent.
"We will see a slowdown in business due to an expected economic downturn [globally] due to effects of the European crisis and the situation in the US as well," he was quoted by Reuters as saying.
China impact
"There will be an effect on China. China is the main economy to affect the supply of oil...so there will be an impact on local economies of the GCC," said the governor.
The UAE needs to find new liquidity tools to ensure its banks will be able to implement new global rules under the Basel III accord, Al Suwaidi said.
"UAE banks have high capital levels, their average Tier 1 capital ratio is about 11 per cent and liquidity rules are expected to be more of a challenge for them as they prepare to meet the Basel III banking standards that will take effect around the world over several years from 2013," he said.
"The UAE controlled its public expenditure and this will negatively affect the economic growth," Ziyyad Dabbas, NBAD adviser for local markets, told Gulf News
"The prices of shares and properties dropped down and will also affect growth in the coming year," he added.
The fiscal policy of the government, particularly the Central Bank, has badly affected the lending facilities by the banks to revive the market. Such a policy was only aimed at avoiding any banking problems in terms of defaults and so on, Al Dabbas said.
Hammam Shamma, consultant at Al Fajr Securities, told Gulf News that the slowdown in the UAE economic growth is for two main reasons.
Positive growth in US
"The monetary policy which strictly controls growth and the strict lending measures exerted by the banks," Al Shamma said.
He added that GCC, particularly UAE debt markets, are not as deep or varied as developed markets, which means that banks have a limited choice of liquidity instruments that they can access locally.
Al Shamma denied that the US economic crisis would have any effect on the GCC economies as the US economy had attained for the first time since the 2008 crisis a positive growth in the economy represented by a drop in mortgage rates from seven per cent to four per cent.
