As part of efforts to strengthen the financial system, the Central Bank has created a short-term lending facility in case banks face the kind of cash shortages experienced during the global financial crisis that erupted in 2008.
The Interim Margin Lending Facility will provide funding on an overnight basis for banks that are able to provide eligible securities as collateral, the Dubai-based UAE Banks Federation said in a statement.
Borrowing will be charged at 100 basis points over the Central Bank’s repo rate for the service, it said.
The Central Bank established the facility after consultations with the federation. Many UAE banks received government support in the aftermath of Dubai’s debt crisis in 2009, much of which has been paid back.
“This is another example of the partnership we have with the Central Bank and the contribution we can make reflecting the interests of the UAE’s banking sector,” said AbdulAziz Al Ghurair, the chairman of the UAE Banks Federation. “We expect the facility to be drawn upon only rarely, but the fact that such a system now exists helps boost confidence in the banks and those who place their trust in them, and in the financial system in the UAE as a whole.”
Eligible assets that can be used as collateral include bonds, sukuk and securities issued by the UAE federal government or authorities in individual emirates, as well as banks and corporations based in the UAE, the federation said.
Securities issued by foreign governments, banks, corporates and supranational agencies will also be accepted as collateral, but must carry a minimum A rating from rating agencies, it added.
A Sharia-compliant version of the facility for Islamic banks in the UAE is being finalised and will be launched shortly.
mkassem@thenational.ae
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