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Wednesday, April 20, 2022

Arabian Business - UAE looks to build local banking and financial sector with sale of dirham-denominated Treasury bonds

By Century Financial in Century in News

Arabian Business - UAE looks to build local...
Bal Krishen, Special to Arabian Business April 20, 2022

Sales of dirham-denominated Treasury bonds are on the horizon for the UAE as it looks to strengthen its local banking and financial sectors.

In the UAE, the federation issued its first-ever dollar bond last year. The country also received its initial credit rating from Fitch Ratings in 2020, which placed it in the fourth-highest investment grade, Bloomberg reported.

The bond programme “will enable market participants in the UAE to maintain a transparent, single, diversified, and sustainable pool of dirham liquidity,” Khaled Mohamed Balama, the governor of the UAE Central Bank, said in a statement Wednesday.

The issuance is “the next step forward in the development of the local capital market,” he added.

The dirham securities worth $408 million (AED 1.5 billion) will be issued initially in two, three, and five-year tenures, followed by a 10-year bond at a later date. A date for the first auction will be announced soon, the bank said.

The chairman and CEO of Century Financial, Bal Krishen, said: “The issuance of Dirham bonds will help UAE raise funds directly from the market and will thus free up resources of the bank for giving loans to other lenders. And a vital aspect is that it will lead to the creation of a local bond market and a yield curve.

“A yield curve with bonds of different duration traded in the market will, in turn, result in a transparent pricing mechanism that will determine the risk-free rate. Banks can use the risk-free rate as a reference for the issuance of loans of comparable duration.”

Krishen added: “Moreover, the Dirham bonds will provide more depth to UAE financial markets by increasing the availability of sophisticated financial products.”

The UAE Ministry of Finance has assembled six local and international banks to participate in the primary market auction, including Abu Dhabi Commercial Bank PJSC, Emirates NBD PJSC, First Abu Dhabi Bank PJSC and Standard Chartered Plc, Bloomberg reported.

Source:
Arabian Business