The Central Bank of the UAE has outlined plans for the development of the local currency bond market, which it says is essential in being able to deal with future financial crises.
Nasser al-Suwaidi, governor of the central bank, said that in November the regulator had identified several elements that needed to be put in place for developing the local bond markets. “Developing the bond market is almost essential for dealing with future financial crisis,” he said, speaking at the Global Financial Markets Forum in Abu Dhabi on 27 February.
The measures included the issuance of local currency treasury bills, encouraging government-related entities to fund themselves and infrastructure projects through the capital markets, and building up local investment funds that can buy up these debt issuances. He also said that a new company should be established for the settlement and custody of trades in local currency bonds.
“A robust local bond market would promote higher levels of liquidity,” Al-Suwaidi said. He added that new banking regulations, known as Basel III, would “discourage banks from making large corporate loans” making it even more important to develop new sources of funding for the UAE’s investment programme.
Bankers in Abu Dhabi say that the next step they are looking for in efforts to develop a dirham bond market will be for the central bank to start issuing treasury bills, which can then be used to set a benchmark for the larger Abu Dhabi banks and corporates to issue dirham-denominated debt.