“Abu Dhabi’s capital injection raises two questions,” says Marios Maratheftis, regional head of research at Standard Chartered. “Why inject capital when banks are already well capitalised? And what are they going to do about the real problem which is the need for more deposits?”
He adds that the widening of spreads on credit default swaps (CDS), which act as an insurance against default, for the Dubai government, indicate the financial markets took the news as negative for the UAE as a whole. Five year CDS spreads on sovereign Dubai debt rose 75 basis points to around 825 basis points following Abu Dhabi’s announcement of the capital injection (MEED 04:02:09)
Robert Thursfield, financial institutions analyst at Fitch Ratings also said that the injection made “other banks in the UAE look potentially more vulnerable.”
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