U.A.E., Qatar Interest Rates Climb as Oil Drop Hurts Liquidity

  • Three-month interbank rate in U.A.E. climbed to 3-year high
  • Similar rate in Qatar rises as loans-to-deposit ratio worsens

A key interest rate in the United Arab Emirates, the second-biggest Arab economy, and Qatar climbed to the highest levels in several years as liquidity tightened across the region amid oil’s decline.

The three-month Emirates Interbank Offered Rate, a benchmark used to price loans, jumped 3 basis points or 0.03 percentage points, to 1.07871 percent on Monday, the highest in more than three years, according to data compiled by Bloomberg. The equivalent rate in Qatar, the world’s biggest exporter of liquefied natural gas, climbed 6 basis points to 1.5025 percent, the highest since January 2011, according to the data.

Bank liquidity in the six-nation Gulf Cooperation Council, which includes the biggest Arab economy of Saudi Arabia, is tightening as a more than 50 percent slump in crude since mid-2014 slows deposit growth and pushes the government to boost borrowing. GCC governments may notch up a combined budget deficit of about $140 billion this year if crude prices remain in the mid-$40s, according to estimates from Emirates NBD PJSC.

"In Qatar, there is the FIFA World Cup construction-related activity and in the U.A.E., there is a lot of Expo 2020 related projects underway," Anita Yadav, head of fixed-income research at Emirates NBD PJSC, the U.A.E.’s biggest bank, said by phone from Dubai. "The government-related companies and the private sector are continuing to borrow and there aren’t that many deposits and so liquidity in the banking system has tightened materially."

Qatar is estimated to spend $200 billion on upgrading infrastructure as it prepares to host soccer’s 2022 World Cup. Dubai, the business and tourist hub in the U.A.E., is spending on hotels and tourist projects as it prepares to host the World Expo 2020.

Qatar banks’ loans-to-deposit ratio, a key measure of liquidity, worsened to 125.9 percent in February from 121.8 percent in the preceding month, according to central bank data. The U.A.E. had a loans-to-deposit ratio of 101 percent at the end of March, according to data from the central bank.

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