Wednesday, Feb 27, 2013
Abu Dhabi: The UAE should have active bond market to face any financial crisis and that bonds market had proved it is a very good instrument to alleviate the repercussions of any economic and financial hardships, Sultan Bin Nasser Al Suwaidi, UAE Governor of the Central Bank, told Gulf News.
Al Suwaidi said: âAn active bond market is very fundamental to deal with any future financial crisis and to alleviate the pressures on banksâ liquidity through the creation of a high degree of liquidity in the economy which would assist in addressing the negative impact in a crisis situation.â
He added that the Central Bank had encouraged financing through issuing bonds and sukuk rather than taking loans or borrowing from banks.
âWe encourage issuing bonds as this will help meet up the challenges and finance any project in a way that does not harm our banking sector which had driven us to act in 2008 following the flow of massive funds out of the country which led to liquidity crisis and lack of confidence in the economy,â continued Al Suwaidi.
He pointed out that there is a co-relation between real estate and financial markets and once there is shortage of liquidity this will negatively affect properties market.
He stated that the application of Basel 2 and Basel 3 require a high liquidity ratio at banks.
âThis will inevitably lead to banks avoiding large corporate loans in the coming years, and banks will switch to bonds with high and medium quality,â said Al Suwaidi.
He added: âWhen there is no active local bond and Sukuk market, banks will be forced to buy bonds in the international markets, and this situation, if developed, will put us in a high risk at crises.â
Therefore, there is a need for establishing a company in charge of clearance, settlements and custody to be linked to the Central Bankâs Payment Division to ensure transparency and to classify bonds and Sukuk.
Mortgage loan caps
Asked about the latest information on the mortgage loan caps, the governor said that the circular which was sent to the banks with the proposed ratios was âa mere notificationâ.
âThe circular was a notification and these ratios were discussed with the UAE Banks Federation the proposed ratios by the banks and we will be issuing regulation in this regard quickly before the end of the year,â said the governor
By Shehab Al Makahleh Staff Reporter
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