National and foreign banks in the United Arab Emirates (UAE) continue to enjoy a strong financial position, according to the governor of the country's central bank. In a statement Saturday, Sultan Bin Nasser Al Suwaidi, governor of the UAE Central Bank, said the ownership of deposits was distributed in such a way that the citizens own 75 percent of the deposits, while Arab nationals and the other expatriate residents own eight percent and 17 percent respectively, the state-run Emirates News Agency (WAM) said. Al Suwaidi's statement came after bourses in the UAE, along with those in other Gulf nations, went through a four-day mayhem this week in the face of the global credit crunch before rebounding Thursday. The resurgence came after the central banks of the UAE, Kuwait and Bahrain announced interest rate cuts along with commitments of liquidity to restore investor confidence. As for the UAE banks' exposure to Western financial institutions, the central bank governor said financing from the European Commercial Paper issues and medium-term notes to the assets of the country's banks stood at 9.9 percent only. Coming to inter-bank deposits percentage, it is 12.7 percent to the total assets and most of these are owned by banks in the UAE. On the assets side, the majority of the assets of national and foreign banks operating in the UAE are in the UAE and their parties are known and sound, he said. In the statement, Al Suwaidi said when it came to capital of banks and their reserves, these represented 11.02 percent of bank assets, which was high enough in terms of Basel II convention standards. Responding to queries about shares of UAE banks being purchased by some foreign countries, he said local governments have substantial percentages in many banks and so the matter was solved in the UAE a long time back. In a press statement, the Central Bank said that the ownership of deposits is distributed in such a way that the citizens own 75 percent of the depostis, while the Arab nationals and the other nationalities own 8 percent and 17 percent respectively. Also banks financing from the European Commercial Paper issues (ECP) and Medium-Term Notes (MTN) to the total bank assets is 9.9 percent only. As for the inter-bank deposits percentage, it is 12.7 percent to the total assets and most of these are owned by banks in the UAE. For the assets side, the majority of assets of national and foreign banks operating in the UAE are in the UAE and their parties are known and sound, contrary to what is there in other economies where most parties in these countries are unknown, said the statement. And for capital of banks and their reserves, they represent 11.02 percent of bank assets, which is considered high according to Basel II standards. Thus, national banks and branches of foreign banks operating in the UAE are constructed on safe and sound foundations of 77.4 percent of secure financing recourses. Responding to some inquiries about the purchase of some foreign countries of shares in their banks, the Central Bank explained that local governments have substantial percentages in many banks; therefore the matter is solved in the UAE from a long time ago. Al Suweidi is now in Washington DC to attend the IMF/WB Annual Meetings. This year a large amount of time will be dedicated to discuss the liquidity crisis and the financial markets turmoil especially in the advanced industrial countries. The discussion will include analysis of reasons which led to these crises and solutions or what is called policy response, i.e. changes in monetary policies and those relating to capital markets. The UAE lowered its overnight repurchase rate to 1.5 percent from 2 percent and cut the borrowing rate on its emergency facility, making it much cheaper for banks to borrow the money. Some analysts said Saudi Arabia might respond with a cut in its repo rate by as much as 100 basis points in coming days. Kuwait slashed its key discount interest rate by 125 basis points yesterday while the UAE cut by a more modest amount, tracking a round of emergency rate cuts by major central banks. Analysts said the changes, which also included moves to make access to emergency funding easier, made it more likely that other Gulf states would cut rates in coming days as authorities bid to ease liquidity tensions in the region. The Kuwait cut added to central bank offers of funds to local lenders in recent days. It cut the benchmark discount rate to 4.5 percent from 5.75 percent and the repo rate to 2.5 percent from 3.5 percent. “The Kuwait bank move is likely to put pressure on other central banks in the region. They are likely to follow suit,” said Mary Nicola, Middle East economist for Standard Chartered Bank in Dubai. As analysts warned of a coming credit crunch that could put a damper on the Gulf's explosive real estate boom and the regional stock markets careened wildly in tune with the United States', the emirates' central bank governor said late last month that his nation's banks “had virtually no exposure” to the collapse of financial institutions such as Lehman Brothers. The region's economy hinges far more on the price of oil than the value of capital markets, which remain relatively small in the gulf states. Cash, rather than credit or clever financing, is the preferred financial instrument for transactions big and small.
