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Cabinet Move Draws Strong Support

DUBAI — Top government officials, corporate heads and business leaders welcomed the decision by the UAE Cabinet to support the economy and protect banks from credit risk as a vital and well-timed measure.

Speaking to Khaleej Times, a cross-section of prominent decision-makers and economic commentators said government’s measures to support the country’s financial system would help further boost confidence in UAE’s ability to weather the adverse impact of the current financial turmoil sweeping across the globe. The move by the government to guarantee bank deposits will help restore the confidence of customers and investors in the financial systems.

They said the strong confidence and optimism about the UAE economy and its financial system voiced by UAE President His Highness Shaikh Khalifa bin Zayed Al Nahyan, and Vice-President and Prime Minister His Highness Shaikh Mohammed bin Rashid Al Maktoum were reassuring and helped to dispel concerns of uncertainty about UAE’s business climate.

Nasser bin Hassan Al-Shaikh, Director-General, Dubai Department of Finance: “At a time when the world is facing unprecedented challenges to the global economic order, the leadership of this country continues to demonstrate vision and foresight in assuring the stability of the nation. The bold statement by His Highness The President provides reassurance to the people of the UAE that our economy is supported by a healthy and robust national banking system.

Dr. Omar bin Sulaiman, Governor of the Dubai International Financial Centre (DIFC) and Vice-Chairman of the UAE Central Bank: “The statement of His Highness Shaikh Khalifa bin Zayed Al Nahyan, President of the UAE and Ruler of Abu Dhabi, reflects the commitment of the country’s leadership to protect the national economy.The measures announced following the cabinet meeting chaired by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, will be viewed by history as a series of significant decisions aimed at ensuring the continued stability, sustainability and growth of the UAE economy. These brave measures indicate the UAE leadership’s deep confidence in the strong fundamentals of the country’s banking and financial system and the whole economy.”

Soud Ba’alawy, Executive Chairman, Dubai Group: “The UAE government’s proactive approach to the global financial crisis is in line with the country’s commitment to provide a stable and strong financial services sector. We believe that this directive will reinforce investor confidence, both at a local and international level, and will also ensure the continued sustainability of our banking institutions.”

Shaikh Sultan bin Saud Al Qassimi, Chairman of Barjeel Geojit Securities: “The UAE investors were always confident that the UAE leadership will intervene if investors were in serious trouble. It is good to know that the government also did not intervene at the very beginning to let market forces take their route. However, unlike the US and Europe, the UAE and other GCC governments are already passive investors in their home markets holding significant stakes in real estate and banking companies amongst others. The UAE government’s intervention can be seen in the light of an investor taking advantage of a great market opportunity as well.”

Hussain Al Qemzi, CEO of Noor Islamic Bank: “We are grateful for the vision and leadership displayed by His Highness Shaikh Khalifa bin Zayed Al Nahyan and His Highness Shaikh Mohammed bin Rashid Al Maktoum in proactively supporting the UAE banking industry. By implementing preventive measures such as the guarantee of deposits, savings and inter-bank loans, the Federal Government has sent a clear message to investors emphasising the stability of the UAE’s financial system, and alleviating any ill-founded concerns about the financial health of UAE banks. Decisive actions such as these will serve to minimise the impact of the international financial turmoil on our nation’s economy, and allow for the continued growth and development of our country. We would like to assure our customers that Noor Islamic Bank will fully support and comply with this directive in its consumer and commercial banking operations.”

Habib Fekih, President, Airbus, Middle East: “The UAE has an excellent track record in economic growth and has always taken the right measures that protect the nation’s interest while supporting its growth vision. Today’s announcement will further boost the national and corporate confidence in the country. “We at Airbus have full trust in the regional economical situation and tremendous growth opportunities hence we continue to expand and grow our operation and presence in the UAE and the region.”

Abdul Kadir Hussain, CEO Mashreq Capital: “It has recently been reported that the central bank will guarantee deposits and savings in local banks. The UAE Cabinet also decided to guarantee interbank lending, a step that will see it being more ahead of the curve than even the US regulators who are only now coming around to taking a similar step. While these moves were not absolutely necessary since the UAE banking system is sound and relatively unexposed to the global financial crises, the moves are reassuring and, I believe, both these steps are significant, the first in maintaining confidence in the local banking system. The second, in easing some of the tight liquidity conditions that have been widely reported as plaguing the UAE banking market in recent weeks.”

Monica Malik, EFG-Hermes UAE Limited: “The UAE has announced further measures to ensure the continuity of economic growth and the protection of the national economy. The authorities will guarantee all deposits and savings in local banks to protect depositors.” “It was also announced that no local bank will be exposed to credits risks and it will guarantee inter-bank lending among all banks operating in the country.

This move, we believe, is aimed at growing the deposit base to increase liquidity in the banking system.

Moreover, it seems that the government is hoping that by guaranteeing interbank operations, where available, banks will utilise liquidity to lend on the interbank market.”

“We believe that the impact of these measures will be relatively limited. We believe that the negative real interest rates are one of the key factors resulting is relatively weak deposit growth, rather than concerns over the banking system. Consequently, we believe that these moves will not result in a marked increase in the deposit base.

UAE and regional banks have been increasing deposit rates in order to attract deposits.

Meanwhile, without an increase in liquidity in the banking system, the ability of bank to increase interbank lending will also be limited.

Dr. Eckart Woertz, Program Manager Economics, Gulf Research Center: “The measures of the UAE authorities is similar to recent moves by politicians in the US and Europe to prevent a further spreading of the crisis.”

Faisal Hasan, Head of Research, Global Investment House: “We feel that while the overall UAE banking system seems to be on strong footing, as further emphasised upon by the authorities, we believe that such directions by the government seem to be a link in a long chain of steps aimed at improving the sentiments regarding the financial markets.

issacjohn@khaleejtimes.com