Wide divergence among Eibor rates between banks

The divergence of rates revealed by the Emirates interbank offered rates (Eibor) through the rates offered by 11 participating banks brings forth the different level of liquidity enjoyed by different banks, according to market analysts.

The standard deviation is very high in tenors of one-, two- and three-month Eibor.

The one-week rates offered by 11 different banks as of October 4, 2009, are almost in the same range at 0.75 per cent with the exception of RAK Bank, which offered at 0.5 per cent.

The one-month rate offered by ADCB and Emirates NBD were 2.3 per cent and 2.35 per cent respectively, whereas that of Citibank and RAK Bank were 1.2 per cent and one per cent respectively – close to half of the former duo.

"One would notice that ADCB and Emirates NBD are banks with very high lending-deposit ratio, which is above 100 per cent, and this means that their liquidity positions are not comfortable," said a top official with treasury department of a Dubai-based bank.

However, these two high rates and low rates will not have a bearing on the Eibor rates released by the Central Bank as "the fixing [of Eibor] in each tenor is the average of all submitted rates after excluding the two highest and the two lowest rates", he said.

Analysts said as the liquidity improves, the divergence will also thin between the rates offered by different banks as well as between tenors.

"Even the difference between the certificates of deposits (CDs) of same tenor and the respective interbank offered rates are hugely different, which is strange," they said.

"One cannot rule out the possibility of banks with lending rates benchmarked against Eibor jacking up rates in order to maintain a higher rate in the market," said sources.

 

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