Business chiefs say cut reserve requirements to boost lending
The rules which are set are that 25 per cent of total capital as the maximum amount that banks can lend to an individual company
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A commercial banker has urged the central bank to cut some of its reserve requirements sharply in order to spur corporate lending.
Abdul Aziz Al-Ghurair, Chief Executive of Mashreq bank suggested cash reserve requirements imposed by the central bank on banks’ current accounts be slashed to just 1 percent from 14 percent to free more funds for lending.
Reserve requirements for time deposits are already at that level. Mashreq confirmed his comments to Reuters. The rules which are set are that 25 per cent of total capital as the maximum amount that banks can lend to an individual company, and an aggregate 100 per cent total for lending to all arms of an emirate's government.
Ghurair, who also chairs the Emirates Banks Association and the Dubai International Financial Centre Authority, the governing body of Dubai’s offshore financial district, said this would provide the banking sector with additional liquidity of up to AED20 billion.
Analysts said the central bank was unlikely to agree to any cut in reserve requirements for the foreseeable future, particularly since the existing amount of funds in the banking system seemed ample. Much of the existing credit growth is driven by lending to government entities.
Bankers have complained that the country's laws, which criminalize bounced cheques and limit the use of a company's assets as collateral for lending, make it difficult to profitably lend to all but the strongest entities.
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