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Central Bank of UAE has created a new mechanism for supporting the banking liquidity

Central Bank of the United Arab Emirates has created an emergency financing mechanism to support bank liquidity in response to the debt problems of Dubai, paralyzing lending and threatening to derail economic recovery, said on November 29 Reuters.

Because of the problems encountered by companies Dubai World and Nakheel, the banks threatened by big losses and the risk that frightened investors will begin to rapidly withdraw cash from the system, as this would jeopardize the interbank lending in the second largest Arab economy world.

“Step of the Central Bank may support the market a bit, but, in my opinion, it is not enough, – the head of brokerage divisions of the company Prime Emirates Shavkut Raslan (Shawkut Raslan). – I think that some foreigners will withdraw their money from the UAE, while others would be afraid to invest in these markets “.

UAE Central Bank decision was taken on Sunday evening, when the Tax and Budget Committee met Dubai, prior to opening exchanges on Monday to prepare a statement designed to reassure investors.

central bank said that opening an additional mechanism for liquidity associated with current accounts, but did not disclose other details. He also said that the UAE banking system is currently healthy, but its liquidity is higher than a year ago.

Analysts say the central bank move is a preventive measure to stop capital flight and the flight of deposits, when the stock exchange will resume its work on Monday after four days of celebrations.

“This step is important because the main concern is the likelihood of panic behavior of investors in Dubai and the bankers who want to withdraw deposits from the banking system,” – said John Sfakianakis (John Sfakianakis), chief economist at banking group Banque Saudi Fransi-Credit Agricole Group in Riyadh.