Banks Scramble For Cash As Speculators Exit UAE Market

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By Tahani Karrar Of ZAWYA DOW JONES DUBAI (Zawya Dow Jones)–Banks in the oil-rich United Arab Emirates are raising local currency interbank rates and tightening up lending as liquidity dries up in the booming sheikdom, said bankers.

“Banks are scrambling for cash, and they are lending money at such a fast pace that they are unable to find depositors,” Malcolm D’Souza, President of the U.A.E.’s Financial Markets Association, told Zawya Dow Jones.

Interbank lending rates have risen from 1.25% to 3% in the last month and one particular Abu Dhabi bank is wooing potential customers by offering them 85% instead of 80% finance if they transfer their salaried accounts to them.

Tighter interbank lending is the first sign that the global credit crunch may be catching up with Persian Gulf monarchies that have so far remained immune from the turmoil because of their healthy oil revenues.

Record oil revenues aren’t filtering down to other sectors of the economy at the same pace as demand for loans is rising, said D’Souza.

“Rather than saying I don’t have enough money to lend you, they are making lending rates more stringent such as offering 80% home finance instead of 95%,” D’Souza said.

As more and more medium- to long-term business deals are agreed daily in the booming sheikdom, ranging from government funded projects such as Dubai Metro to luxury private real estate deals, such as new waterfront communities, demand for business credit is rising.

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