UAE to back banks amid Dubai meltdown

The United Arab Emirates’ central bank is saying it “stands behind” local and foreign banks operating in the country, offering them access to money in a sign the Gulf Arab nation’s federal government is racing to curtail investor fears over Dubai’s crushing debt.

The UAE’s official WAM news agency said today the central bank issued a notice to Emirati banks and foreign banks with branches in the country saying it would make available “a special additional liquidity facility linked to their current accounts at the central bank.”

The statement comes just days after world markets reacted with shock to news that conglomerate Dubai World wanted creditors to give it a six-month extension on paying some of its $60bn (€40bn) in debts.

The central bank’s intervention aims to prevent a wholesale loss of confidence in the region and a mass exodus of funds.

It said that the UAE banking system was “more sound and liquid” than a year ago, with a “strong base of stable deposits”.

Peter Sands, chief executive of Asian-facing bank Standard Chartered, said the UAE had acted “decisively and pragmatically” in announcing the measures.

“Their support for the banking system will underpin consumer and market confidence in the economy. We are confident that Dubai and the UAE as whole will work through these issues and continue to prosper as a dynamic and vibrant part of the world,” he said.

Abu Dhabi yesterday hosted a meeting of senior Gulf officials over plans to tackle the crisis.

But according to weekend reports it will not be writing a ’blank cheque’ for its struggling neighbour, which may have to sell off some of the assets piled up in the boom years to meet its obligations.

Dubai World’s own investments range from Scotland’s historic Turnberry to Nakheel, the developer behind Dubai’s luxurious Palm manmade islands.

Other assets swept up by Dubai’s network of sovereign wealth and investment firms include the QE2 cruise liner, the Emirates airline and the Travelodge budget hotel chain.

Deloitte has been appointed as an adviser to Dubai World to help it restructure the company’s huge debts.

The firm had a $3.5bnx (€2.3bn) bond payment due in December and wants breathing space for all debt repayments falling due until the end of next May.