ABU DHABI (AFP) — The oil-rich United Arab Emirates said on Sunday that it will guarantee deposits and savings in local banks to protect depositors in face of the global financial turmoil.
The UAE cabinet also decided to ensure that no local bank will be exposed to credit risks and to guarantee inter-bank lending among all banks operating in the country, state WAM news agency reported.
The UAE -- the first oil-rich Gulf country to take drastic measures to protect depositors from the global financial meltdown -- will also pump the necessary liquidity into the banking system if required, WAM said.
The cabinet's "preventive" measures are aimed at "ensuring continued economic growth and protecting the national economy," it added.
"We are serious in protecting our financial system and banking sector," said Prime Minister Sheikh Mohammad bin Rashed al-Maktoum.
WAM also quoted UAE President Sheikh Khalifa bin Zayed al-Nahayan as stressing that the UAE economy is sound and its banking sector solid.
The moves came as the two stock markets in the UAE, a country in the midst of an economic boom, continued to slump, pulled down mainly by the real estate sector.
The cabinet's guarantee of savings and deposits covers most retail banks operating in the UAE, including those used by foreign residents.
On Wednesday, the UAE central bank slashed its lending rate to banks by two points to three percent and its benchmark rate by 0.5 point to 1.5 percent in a move to raise market liquidity.
The move came after the US Federal Reserve cut the key federal funds rate by half a point to 1.5 percent as part of a coordinated world effort to halt the meltdown of financial markets.
The UAE currency, the dirham, is pegged to the dollar, and authorities consistently follows the Federal Reserve in setting interest rates.
Central bank governor Sultan bin Nasser al-Suwaidi said in a statement reported in Sunday's local press that the banking sector is robust, with solid fundamentals, including 77.4 percent of secure financing resources.
Most of the assets of local banks are domestic, and they are therefore less vulnerable to the rapid withdrawal of foreign "hot money" from the UAE over the past month, he was quoted as saying.
Central bank board chairman Khalil Mohammad Sharif Folathi said on Wednesday that commercial bank assets amount to 1.3 trillion dirhams (354 billion dollars) and the capital reserve is at 13 percent.
He said total mortgage lending by banks in the UAE does not exceed 11 percent of total assets and 18 percent of total deposits.
On September 22, the central bank set up a 13.6-billion-dollar facility to help banks cope with the global financial crisis and said it might make more money available if needed.
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