Revamp of Eibor panel on track

Central bank to launch its panel to set the Emirates interbank offered rate (Eibor) despite technical issues by the end of this month.

The Central Bank still plans to launch its panel to set the Emirates interbank offered rate (Eibor) by the end of the month, despite technical problems with the computer server it will use to establish the measure. The regulator has made changes to the panel of banks that help determine Eibor in an effort to lower interbank lending rates and stimulate lending.

Eibor is the average interest rate that banks charge when they lend to one another. A trial run of the new system on Monday was halted after technical problems were encountered by the electronic platform server linking the Central Bank with the 11 banks that will be on the panel. "We had a test run on Monday and were not satisfied and so we are going back to have another look," a Central Bank official said. "We are testing and we want it to be ready before we launch it."

The Central Bank intends to carry out another trial run within the next few days to ensure the new system can be established as originally planned. Currently, the 10 local and foreign banks on the panel submit their lending rates, with the highest and lowest figures discarded, and the average of the remainder calculated. Banks' liquidity constraints have helped keep Eibor comparatively high, although it has come down significantly from its peak of about 4.8 per cent in October last year.

The Central Bank hopes by introducing a new mechanism to determine Eibor, it will lower rates to a level more reflective of the market and at the same time help to boost lending to companies and individuals. Lending has slowed in the wake of the global financial crisis and banks remain reluctant to extend finance while their deposits still lag government capital adequacy rules. The reshaped panel includes four new local bank members: First Gulf Bank, Union National Bank, Mashreqbank and RAKBank.

Two weeks ago, the regulator told banks they could significantly lower their capital adequacy ratios, the capital they hold to back up their lending, in the government's latest attempt to increase liquidity within the banking system. [e-mail]