The Central Bank of the UAE says it “stands behind” the domestic banking system and has reaffirmed its commitment to support banks with exposure to Dubai World.
According to a statement on 14 December, the central bank said it has been in talks with the Dubai government about restructuring Dubai World’s $26bn debts.
The bank added that, following a statement earlier in the day from the government of Dubai, it had received $10bn from the Abu Dhabi government to pay off debts owed by Dubai World and the central bank “reaffirmed its position that it stands behind the banks”.
Sources close to the Dubai government say the central bank is ready to provide any additional liquidity to the banking system that is needed, but is not needed currently.
The central bank said in its statement that “the UAE banking system is more sound and liquid than a year ago”.
The central bank has already taken several steps to provide support for the local banking sector, most recently offering additional liquidity to the banks at a rate of 50 basis points above the three-month emirates interbank offered rate, announced on 29 November.
The statement from the government of Dubai earlier in the day said the funds it has received from Abu Dhabi would be used to pay off the $3.5bn Nakheel sukuk (Islamic bond) due on 14 December. About $6bn would be used to repay contractors and trade creditors of Dubai World, added the statement.
The Dubai government has also announced it is passing a restructuring law on 13 December, that will enable Dubai World and its subsidiaries to seek creditor protection during the restructuring process. The law establishes a court in the Dubai International Financial Centre with a three-member tribunal that will hear cases relating to insolvency.