DUBAI: The central bank of the United Arab Emirates will introduce on April 15 a mechanism allowing the country’s banks to borrow funds from it overnight, to help their liquidity management.
The Interim Marginal Lending Facility (IMLF) will let lenders use certain assets as collateral to obtain one-day loans, according to a letter to banks which was published on the central bank’s website yesterday. Such mechanisms, common in developed money markets, are especially useful during times of market stress, when banks are reluctant to lend to each other because of a desire to maintain their cash holdings and out of fears that the borrower might default on the loan.
Banks accessing the IMLF must borrow a minimum of Dh10m ($2.7m) and will be charged 100 basis points over the official UAE Repo Rate for doing so, according to a separate document on the bank’s website.
Eligible assets that can used as collateral include bonds, sukuk and securities issued by the UAE federal government or authorities in individual emirates, as well as banks and corporations based in the UAE.
For assets to qualify, they must be tradable and carry a rating from one of the three main international rating agencies, except in the case of securities issued by local governments in the UAE - an important caveat as the Dubai government currently doesn’t have a rating.Reuters
