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Liquidity in Banking System has Improved: Al Suwaidi

ABU DHABI - The liquidity conditions in the banking system have improved but banks will resume lending only when they are comfortable with overall economic environment, said Sultan bin Nasser Al Suwaidi, the Governor of the Central Bank of the UAE.

“It will take time until banks feel comfortable, and when they feel comfortable, definitely they will resume lending,” Al Suwaidi said while speaking to the media in the capital on Tuesday.

The Governor declined to comment on Standard Chartered bank’s recent report, which called for injecting another Dh100 billion in deposits for the banks to improve liquidity and better their advance to deposit ratios to resume lending.

Al Suwaidi, however said Dh50 billion facility made available by the Central Bank in September last year was not fully exhausted by the banks. But he said that banks always need deposits so that they can lend more.

On the issue of Dh16 billion capital injection by Abu Dhabi government into five of its banks on February 4, he said it was not a liquidity enhancing measure, but a decision by the owners and shareholders of these institutions to increase capital base through issuing tier-1 bonds. “We at the Central Bank of the UAE welcome any measure which leads to increase in capital,” he said.

The Governor said that the Central Bank has necessary mechanism in place in the shape of certificates of deposits (CDs) to improve deposits position or to suck liquidity from the market.

To a question about the banks based in Dubai also needing to injection more capital, he said it is up to their shareholders to decide, whether they need to increase capital or not.

When asked whether Dubai’s financial and real estate companies require more financial support than they had been given, the governor declined to say anything. “It’s their opinion, their judgment and idea. I won’t say less or more,” he said.

Asked about what plans government has to tackle with the impact of global crisis on the economy, the governor said federal government together with the Central Bank is vigilant and has stepped in to put in place comprehensive measures to manage the situation in a right way. “All economies are facing it (economic crisis) and we will also manage it effectively,” he said.

A high-level ministerial committee has already been constituted to monitor the situation and to recommend measures to control it.

Central Bank of the UAE on Tuesday signed an agreement with the IFS School of Finance — London for implementation of the second phase of the National Banking Examiner Programme (NBEP), after completion of the foundation phase which started in April 2008.

haseebhaider@khaleejtimes.com