The interest rate at which banks in the UAE lend to each other is hovering near an eight-year low, driven in part by flows of money into bank accounts, stocks and real estate from jittery investors in other emerging markets that see the country as an oasis of stability.
And as long as the country maintains its safe-haven status and the currency is pegged to the US dollar, the interbank rate, known as the Emirates Interbank Offered Rate, or Eibor, will probably continue to provide cheap funding for all those in need.
“Dubai gets a lot of capital flow coming in because it’s a haven from all kinds of instability,” said Simon Kitchen, a Cairo-based Middle East strategist at the Egyptian investment bank EFG-Hermes. “Since 2011 that’s been a haven from political instability, but more recently you’ve had wealthy people in China, India, Russia – big emerging markets. They are not happy about the economic and possibly political outlook at home, and so they are putting money into Dubai.”
Because the dirham is pegged to the US dollar, interest rates have been subdued ever since the United States Federal Reserve started to maintain record-low rates in the aftermath of the global financial crisis in 2008. The Fed has said it is unlikely to raise rates until next year.
The 12-month Eibor rate stands at 1.177 per cent. Since 2006, when records began, it has averaged 2.83 per cent, reaching a high of 5.52 per cent in 2007, according to Bloomberg.
Jaap Meijer, the head of research for financials at the Dubai-based Arqaam Capital, suggested that the Eibor rate has little room to fall further because it is now only 17 basis points above the UAE Central Bank’s overnight repo rate. “We do not expect any change to the official rates for the next 12 months or so, given the peg to the dollar,” he said.
Mr Meijer said the low Eibor rate reflected the strengthening of the banking sector, which has seen “lower non-performing loans, increased coverage ratios and improved liquidity facilities” over the past year. He also pointed to an improving loan-to-deposit ratio, now at 92.6 per cent compared to 94.7 per cent a year ago and 100 per cent three years ago, as a rationale for the declining Eibor.
Total bank deposits stood at Dh1.27 trillion in November, according to the latest Central Bank figures.
Low Eibor rates will continue to stimulate the UAE economy as companies take out loans to fund expansion and individuals increase real-estate purchases. At the same time, analysts warn that regulators will have to ensure that the country does not see a repeat of the debt crisis that it has begun to recover from.
“Economic activity has increased because of improved liquidity as reflected by the real estate, commodity and service sectors,” said Sangeet Jain, the assistant vice president for money markets at the Abu Dhabi-based asset manager Invest AD. “However, regulators are keeping a close eye on the economy and will be sensitive to any signs of overheating, and they will be quick to take preventive measures.”
The Eibor is set by a panel of 11 banks. Banks submit rates to the Central Bank, which removes the two highest and two lowest rates before calculating the average for a series of terms ranging from one week to one year.
mkassem@thenational.ae
COMPANY PROFILE
Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
A QUIET PLACE
Starring: Lupita Nyong'o, Joseph Quinn, Djimon Hounsou
Director: Michael Sarnoski
Rating: 4/5
COMPANY PROFILE
Name: SmartCrowd
Started: 2018
Founder: Siddiq Farid and Musfique Ahmed
Based: Dubai
Sector: FinTech / PropTech
Initial investment: $650,000
Current number of staff: 35
Investment stage: Series A
Investors: Various institutional investors and notable angel investors (500 MENA, Shurooq, Mada, Seedstar, Tricap)
Sarfira
Director: Sudha Kongara Prasad
Starring: Akshay Kumar, Radhika Madan, Paresh Rawal
Rating: 2/5
Calls
Directed by: Fede Alvarez
Starring: Pedro Pascal, Karen Gillian, Aaron Taylor-Johnson
4/5
Company Profile
Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8
Herc's Adventures
Developer: Big Ape Productions
Publisher: LucasArts
Console: PlayStation 1 & 5, Sega Saturn
Rating: 4/5
CRICKET WORLD CUP QUALIFIER, ZIMBABWE
UAE fixtures
Monday, June 19
Sri Lanka v UAE, Queen’s Sports Club
Wednesday, June 21
Oman v UAE, Bulawayo Athletic Club
Friday, June 23
Scotland v UAE, Bulawayo Athletic Club
Tuesday, June 27
Ireland v UAE, Bulawayo Athletic Club
EMIRATES'S REVISED A350 DEPLOYMENT SCHEDULE
Edinburgh: November 4 (unchanged)
Bahrain: November 15 (from September 15); second daily service from January 1
Kuwait: November 15 (from September 16)
Mumbai: January 1 (from October 27)
Ahmedabad: January 1 (from October 27)
Colombo: January 2 (from January 1)
Muscat: March 1 (from December 1)
Lyon: March 1 (from December 1)
Bologna: March 1 (from December 1)
Source: Emirates
MATCH INFO
Fixture: Ukraine v Portugal, Monday, 10.45pm (UAE)
TV: BeIN Sports
Confirmed bouts (more to be added)
Cory Sandhagen v Umar Nurmagomedov
Nick Diaz v Vicente Luque
Michael Chiesa v Tony Ferguson
Deiveson Figueiredo v Marlon Vera
Mackenzie Dern v Loopy Godinez
Tickets for the August 3 Fight Night, held in partnership with the Department of Culture and Tourism Abu Dhabi, went on sale earlier this month, through www.etihadarena.ae and www.ticketmaster.ae.
THE BIO
Bio Box
Role Model: Sheikh Zayed, God bless his soul
Favorite book: Zayed Biography of the leader
Favorite quote: To be or not to be, that is the question, from William Shakespeare's Hamlet
Favorite food: seafood
Favorite place to travel: Lebanon
Favorite movie: Braveheart
Ten10 Cricket League
Venue and schedule Sharjah Cricket Stadium, December 14 to 17
Teams
Maratha Arabians Leading player: Virender Sehwag; Top picks: Mohammed Amir, Imad Wasim; UAE players: Shaiman Anwar, Zahoor Khan
Bengal Lions Leading player: Sarfraz Ahmed; Top picks: Sunil Narine, Mustafizur Rahman; UAE players: Mohammed Naveed, Rameez Shahzad
Kerala Kings Leading player: Eoin Morgan; Top picks: Kieron Pollard, Sohail Tanvir; UAE players: Rohan Mustafa, Imran Haider
Pakhtoons Leading player: Shahid Afridi; Top picks: Fakhar Zaman, Tamim Iqbal; UAE players: Amjad Javed, Saqlain Haider
Punjabi Legends Leading player: Shoaib Malik; Top picks: Hasan Ali, Chris Jordan; UAE players: Ghulam Shabber, Shareef Asadullah
Team Sri Lanka Cricket Will be made up of Colombo players who won island’s domestic limited-overs competition
Arrogate's winning run
1. Maiden Special Weight, Santa Anita Park, June 5, 2016
2. Allowance Optional Claiming, Santa Anita Park, June 24, 2016
3. Allowance Optional Claiming, Del Mar, August 4, 2016
4. Travers Stakes, Saratoga, August 27, 2016
5. Breeders' Cup Classic, Santa Anita Park, November 5, 2016
6. Pegasus World Cup, Gulfstream Park, January 28, 2017
7. Dubai World Cup, Meydan Racecourse, March 25, 2017