CENTRAL BANK ACTS TO HALT DUBAI ROUT
The United Arab Emirates’ central bank has issued emergency credit facilities to banks in the region amid mounting fears that Dubai’s debt crisis could contaminate the rest of the Middle East.
The bank – based in Abu Dhabi – issued a statement yesterday saying it “stands behind local and foreign banks operating in the country” and would offer them a special additional liquidity facility to shore up confidence among depositors.
The move is an attempt to reassure investors after state-owned Dubai World asked creditors for an extension on repaying some of its $59bn (£36bn) of debts last week. News of Dubai World’s difficulties sent stock markets plunging around the world and fuelled fears that sovereign debt was not as safe as previously believed. Dubai’s credit default swaps surged to 675 basis points on Friday, meaning insuring $10m of the emirate’s debt would cost £675,000.
An announcement from the Dubai government giving further reassurance about the situation is expected today as markets in the Middle East reopen after the Eid holiday.
Analysts saw the measure by the UAE central bank as a means to avoid a run on deposits. Shawkut Raslan of Prime Emirates Brokerage said: “I think some foreigners will take their money out of the country and others will be afraid to put their money in to these markets.”
Over the weekend officials from across the Emirates met to thrash out a response to the crisis. Abu Dhabi, capital of the UAE, said it was still weighing up how to assist its neighbour, in a move that suggested it would not be writing Dubai a blank cheque. “We will look at Dubai’s commitments and approach them on a case-by-case basis,” an official said. “It does not mean that Abu Dhabi will underwrite all their debts.”