UAE cbank not too concerned about banks lending risk

UAE's central bank will continue to ensure sufficient liquidity in the banking system and would like to see lower loan to deposit ratios but is not too concerned about lending risks, its governor was quoted as saying on Wednesday.

UAE banks are heavily exposed to the multi-billion dollar debt restructuring of Dubai's state-owned conglomerate Dubai World, which is expected to weigh on economic recovery in the UAE, the world's third-largest oil exporter, this year.

"Institutions must look at risks carefully with regard to lending, but I am not overly concerned on this front because banks in the UAE are mainly retail commercial banks," Governor Sultan bin Nasser al-Suweidi said in an interview with Oxford Business Group, a publishing, research and consultancy firm.

"This means the system benefits from the inherent strength of business banking, while also having the advantages associated with retail. Against this backdrop, UAE banks are very solid with high liquidity and a central bank which is supportive."

It was not immediately clear when the interview took place.

The comments echoed remarks made by Suweidi earlier this week, when he said the country's banks were healthy and well capitalised and that he saw no impact from the Greek crisis on the UAE economy.

Suweidi also told Oxford Business Group that the central bank would continue to ensure the banking system had sufficient liquidity, while exercising indirect control on credit expansion as global recovery was still in its early stages.

"I think these are the most important pillars," he said, adding the central bank would like to see a lower loans to deposit ratio. The second-largest Arab economy is expected to grow by 2.5 per cent this year, the slowest pace of growth in the Gulf, after an estimated 1.4 per cent contraction in 2009.

A lack of deposits in the system, banks' reluctance to lend to each other and harder access to offshore credit had been keeping interbank offered rates higher with the central bank saying they did not reflect market levels.

The benchmark UAE one-month ratewas fixed at 1.7875 per cent on Wednesday, remaining more or less stable for the past two months, up from a low of 1.46 per cent in November.

The overnight rate has come down to 0.59375 per cent from a five-month high of 0.65 percent in March. The loans to deposit ratio was 1.06 in March, central bank data showed.