Dh110bn 'shortfall in banking system'

The Central Bank Governor calls on the Ministry of Finance for a stimulus plan as lending by banks significantly exceeds deposits.

The banking system has a Dh110 billion (US$29.94bn) shortfall between loans and deposits that the Government must make further efforts to close, says Sultan al Suwaidi, the Central Bank Governor. "The current situation requires a stimulus plan for banks and the economy in view of this 'gap', which could be bridged in collaboration with the Ministry of Finance," Mr al Suwaidi said at the 10th meeting of the Dubai Economic Council, according to a statement published on WAM yesterday.

Mr al Suwaidi was referring to one of the most persistent challenges for the country's banks, and for the economy, in the current financial crisis: how to keep banks lending while keeping to a Central Bank rule that requires the amount of loans not to exceed deposits. As a group, banks' loans now exceed deposits by a significant margin and many banks are cutting back lending in an effort to bring the ratio back into line.

The country has taken several steps to regenerate the economy, including promises from Federal and local governments to continue spending, despite lower oil prices and a general economic slowdown. The Federal Government has also pledged up to Dh120bn in emergency funding for local banks. Hani al Hamli, the director general of the Dubai Economic Council, suggested that the Government could issue more long-term bonds to stabilise the economy. Last month, Dubai launched a $20bn bond programme to help the emirate raise money.

Yesterday, the Minister of Economy, Sultan al Mansouri, said discussions on the merger of the Dubai property companies Amlak Finance and Tamweel were nearing completion, and should be announced soon. "Dubai is very much addressing these issues and they have done a wonderful job in terms of coming up with solutions ... I am very impressed with these solutions, with more to come as they go on," Mr al Mansouri said.

He also said that inflation should fall this year, possibly between five and eight percentage points. The country's inflation rate has been estimated at 12 to 13 per cent. But he added: "There are many variables: these variables will always influence the inflation. So prediction is one thing, reality - dealing with all these variables - is another thing. We always will continue to have positive GDP growth in our economy," he added.