UAE Central Bank Plans Discount Window, Says Outlook Positive

The discount window will improve liquidity management practices in the country, the central bank said.

UPBEAT OUTLOOK

The central bank said growth prospects of the OPEC member’s $338 billion economy were encouraging and banks operating in the country were well-equipped to deal with major stress scenarios and contingencies.

“As regards the prospects for 2012, the UAE economy may achieve better results than the International Monetary Fund estimate of 3.5 per cent growth,” it said.

Dubai, the Gulf trade and financial hub, may achieve four per cent growth or more and an equal performance is expected for Abu Dhabi, which accounts for almost all of the UAE’s oil production.

Increased spending in northern emirates of the seven-member UAE federation and expectations of high oil prices, which are currently above $114 per barrel, were among the reasons for the bank’s upbeat outlook.

The UAE economy grew by 4.2 per cent in 2011 but the global slowdown, partly due to the debt crisis in the Eurozone, is expected to take toll this year. A Reuters poll in July forecast 3.2 per cent growth in 2012.

The central bank, which pegs its dirham currency to the U.S. dollar, said inflation would remain moderate in line with the IMF’s estimate of 1.5 per cent for the year.

It also noted that it considered the UAE banking system more mature and stable, adding lenders did not currently hold any debt issued by peripheral European countries.

The country exposure of banks operating in the UAE — loans and advances excluding interbank — amounts to Dhs93.9 billion or 5.1 per cent of their total assets, it said, putting the European share at 15 per cent.

“Banks operating in the UAE have managed to diversify their funding into the Middle East and Asia,” it said.

Finalising major debt restructuring deals with various entities will likely raise UAE banks’ non-performing loans to a peak around an average of 8 to 9 percent compared with a ratio of 7.2 per cent at the end of 2011, the bank said.