Dubai: The United Arab Emirates will pump 70 billion dirhams ($19 billion) of emergency funding into the banking sector, the state news agency said on Tuesday, but it left bankers guessing about how the new facility would operate.
The new funds would bring to 120 billion dirhams ($32.67 billion) the amount the UAE has devoted to its banking sector to fend off the credit crisis after the UAE central bank created a 50 billion dirham lending facility last month.
The UAE prime minister ordered the transfer of funds to the finance ministry to pump into the banking sector to protect against global volatility, state news agency WAM said.
But details of the new facility had not yet reached commercial banks, one treasurer at a major UAE bank said. The UAE central bank declined to comment and a spokesman for the finance ministry was not immediately available.
If the government places new funds as deposits with banks, it will ease funding tensions and help relax borrowing conditions that threaten to choke off a five-year economic boom in the Arab peninsula, he said.
But if the funds are merely meant to augment the existing 50-billion-dirham borrowing window, it is unlikely to have any impact, he said.
“If there is actual cash coming into the market, we’ll see the interbank market settling down,” he said.
“If it doesn’t come in ... in that case, actual lending and borrowing in the interbank market will not improve.”
The ruler of Dubai and UAE Prime Minister Sheikh Mohammed bin Rashid al-Maktoum ordered the central bank and the finance ministry to devise a system by which to pump the new liquidity into the financial sector, WAM said.
It gave no more details about how the new facility would work.