Guarantee on bond sales to stimulate lending

A planned federal law that will guarantee the bond sales of local banks will trigger a new wave of lending and allow financial institutions to tap cheaper funds, senior bankers say.

The Federal Government is close to introducing legislation that will guarantee bond sales, aimed at shoring up investor confidence in new issuances as regional capital markets struggle to recover from the global recession.

“In my view, formalising a government guarantee on deposits and bank borrowings will certainly act as a catalyst for foreign investors to lend to UAE borrowers,” said Mohammad Wajid, the global head of the financial institutions division at Emirates NBD. “The true recovery will start only once banks themselves feel comfortable to lend actively again.”