Abu Dhabi: The UAE Central Bank Governor said on Monday the country's banks have used only 15 per cent of the Dh50 billion emergency funding facility which the UAE Central Bank provided last month for banks to cope with the shortage of funds in the interbank market.
"For the time being, since the first facility has been utilised to the extent of 15 per cent, I think we can wait and see what will happen," Sultan Bin Nasser Al Suwaidi told reporters on the sidelines of a conference here.
Al Suwaidi was replying to a question whether there will be another emergency funding facility extended to the country's banks in the foreseeable future to ease the liquidity crunch. "Things are getting better, things are stabilising," Al Suwaidi added.
Minimum exposure
His comments come amid growing concerns of a severe impact of the global financial crisis on the Gulf economy that has prompted the UAE to guarantee bank deposits — a move being replicated by others.
He said the UAE banks are at no risk in the current global financial crisis. "The UAE banks' exposure to the subprime and structured products, CDOs [collateralised debt obligations], credit default swaps and so on… is 1.2 per thousand," said Al Suwaidi.
"The situation in the US is totally different because you have loans and no borrowers. In the UAE, there are borrowers, there are real loans, there are real books, real mortgages and real documentation," he said.
He said a correction of real estate market in the UAE could happen, but the UAE banks will be able to weather the impact. "The UAE banks are well cushioned and we could go to a lower level," said Al Suwaidi, but he didn't elaborate.
Al Suwaidi said he supports the merger of banks in the UAE, a move that could help cut costs and increase efficiency.
Asked if the proposed GCC monetary union was possible by 2010, Al Suwaidi said: "Monetary Union is something and the [global financial] crisis is something else. Maybe the crisis will speed up the monetary union, not delay it."
On the UAE's gross domestic product (GDP) growth this year, Al Suwaidi said, "As you heard from the IMF [International Monetary Fund] reports, the UAE will have a lower growth of 6.6 per cent in 2008-09 on average." On the likelihood of another interest rate cut, Al Suwaidi said: "We follow the US Federal Reserve. If they do cut [interest rates], we might decide to cut. We might not decide to cut because the cut below this level is meaningless for monetary policy."
Will bank mergers have a positive impact on the current problem? What other measures need to be taken to revive the economic situation?