Interest rates under review

Abu Dhabi: The UAE Central Bank has announced that it will conduct a survey of banks operating in the country to gauge their opinions on the possibility of amending interest rates and fees on personal loans and other fees and commissions against services offered to clients.

The Central Bank's board met to review the proposal for amending interest rates and charges on personal loans in addition to charges and commissions charged against services rendered to individual customers, and the board decided to seek the opinions of banks on the system.

Last week, a report in a Dubai newspaper claimed that banks in the UAE have decided to lower interest rates on personal loans to 7% as of June.

The cut would affect car, personal finance and housing loans, the report said without identifying its sources in the banking sector. Liquidity had improved and interbank lending was returning to the same levels seen before the global economic crisis, sources claimed.

Meanwhile, British real estate brokerage Knight Frank released a study last week stating that Dubai house prices experienced the biggest fall among global property markets in the first quarter of 2009.

"On a quarterly basis, the most dramatic fall in prices were recorded by Dubai (40%) and Singapore (16.2%)," Knight Frank said in a note. Prices fell 32% year-on-year in the 12 months ending March 31, it said. Dubai had been the best performer quarter-on-quarter in the first quarter of 2008.

Last week, the Governor of the UAE Central Bank, Sultan Bin Nasser Al Suwaidi told reporters that the difference between loans and deposits in UAE commercial banks (the 'liquidity gap') was narrowing and would be "eliminated".

The governor did not mention the size of the deficit. However, in early May he announced that it had shrunk to about Dh91 billion, from Dh110 billion in March as local bank deposits increased.

The 'liquidity gap' has widened as foreign investors pulled money out of Gulf banks because of the global crisis.

The UAE has also responded to the downturn by cutting its key interest rate to 1%.