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Central bank should ease loan ratios: NBAD

DUBAI — The UAE central bank should relax rules that govern how much banks may lend to help bring down the cost of borrowing, the chief executive officer of the country’s second-biggest bank by assets, said.

The regulator should ease the so-called loans-to-stable resources ratio, Michael Tomalin, CEO of the National Bank of Abu Dhabi PJSC, said in an interview in Abu Dhabi. The government could alternatively inject additional deposits into banks, as it did in October 2008, when it placed Dh50 billion ($14 billion) with the country’s lenders, he said.

“We definitely do need to” bring down borrowing costs, Tomalin said. “One way, of course, is to provide more liquidity to the system, another way is to change the loans-to-stable resources formula” used to regulate lending, he said.

Borrowing costs in the United Arab Emirates, the second-biggest Arab economy, have risen 22 per cent since January as banks struggled to attract deposits. The three-month Emirates interbank offered rate, the interest rate at which banks borrow and lend to one another, climbed to 2.3 per cent on March 22, its highest this year, from 1.88 percent on January 5, according to data compiled by Bloomberg.

That is higher than the equivalent London interbank offered rate, which stood at 0.29 per cent on Tuesday. The UAE central bank requires all banks to maintain a loan-to-stable resources ratio of less than or equal to one.

Stable resources include banks’ own funds, subordinated loans, bank deposits with a life greater than six months, and 85 per cent of deposits with maturity of less than six months.

“The best way of resolving this is to reduce the haircut on customer deposits,” Tomalin said. “My view is to look at the haircut on customer deposits and take it up to 100 per cent or 95 per cent from 85 per cent on a temporary basis,” Tomalin said. “That would have the effect of easing that ratio.”

The UAE banks’ overall loans exceeded deposits by Dh59.2 billion in February, up from Dh47.1 billion in January, according to central bank data. Almost 62 per cent of UAE banks’ fixed deposits of Dh685 billion at the end of November were to mature in less than six months, the data shows. If regulators included all fixed deposits in the stable resources, it would boost banks’ lending capacity by at least Dh63.2 billion, according to Bloomberg News calculations.

UAE banks have enough liquidity to meet the economy’s needs, central bank Governor Sultan bin Nasser Al Suwaidi said in an interview in the Sudanese capital Khartoum on Tuesday.

“The situation of liquidity and deposits in the banking system is normal and compatible with the economy and its needs,” Suwaidi said.

“The banks lend when there is demand, when there are big projects that require a lot of financing.”