Banks chase deposits with high interest rates

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Banks in the UAE have increased their interest rates on fixed deposits in an effort to increase liquidity in their balance sheets.

Emirates NBDEmirates NBD is offering up to six per cent interest on a one-year deposit while HSBCHSBC is offering a 5.05 per cent interest per month provided the customer maintains a minimum Dh25,000 for at least a month.

HSBCHSBC's rate, however, falls down after the third month. The rate for the one-year fixed deposit is slashed to three per cent. A customer service executive from HSBCHSBC told this newspaper that the deposits are needed for short term hence a higher interest in the first three months.

Some analysts say the best fixed rate deposit rates on dirhams are available from HSBCHSBC and CitiCiti, which offer six per cent on a nine-month timed deposit, and start from 5.05 per cent for a one-month deposit of Dh25,000 upwards.

"Our customers have reacted positively to the increase in rates, however, business remains as usual," a spokesperson for HSBCHSBC said. "Our current rates are based on the Inter-bank Money Market rate for the given tenor. We cannot predict future market rates to decide on rates in the future."

Standard CharteredStandard Chartered is offering up to 6.1 per cent annual return on fixed deposits starting at Dh25,000, an offer that will run until December 31 only. A three-month fixed deposit guarantees a 5.5 per cent per annum interest while six months and a year fixed deposit have interest rates of 5.6 per cent and 6.1 per cent respectively.

Some banks have resorted to a number of promotional strategies to entice customer for fixed term deposits. RBSRBS (formerly ABN Amro) for one is offering four grammes of gold and four per cent interest for every Dh400,000 fixed deposits with a minimum tenure of four months.

This is good news for depositors as not only are the rates record high, all bank deposits in the UAE - local, regional and international alike - are guaranteed by the federal government for an unlimited amount.

"The liquidity issue has reached a concern," Douglas Beckett, Executive Vice-President and Head of Retail Banking at MashreqMashreq, the UAE's largest private bank, told Emirates Business. "There has been a slowdown in lending and banks have to re-assess how they lend money and where they lend money. In our case, this happens mainly on the corporate side." Although the liquidity crisis has not exempted any bank, Beckett says MashreqMashreq's deposit portfolio remains "stable and strong".

He said unlike a series of other banks, which have been increasing their interest rates to flux cash into their drying systems, MashreqMashreq's deposits are still "positive".

"We are not chasing deposits," he said. "MashreqMashreq has no need to chase deposits like some of our competitors. Our deposit structure is strong and stable and we are in a very comfortable position. So we won't over pay," He declined to say whether the bank has increased its rates as well but said: "We will certainly defend our customer relationship which is under attack by other banks."

Meanwhile, some other banks have been showing resilience and are not increasing deposit rates. Abu Dhabi Commercial BankAbu Dhabi Commercial Bank is offering 1.25 per cent interest on one-month basis and 1.45 per cent for one-year fixed deposits lower than Dh250,000.

By Karen Remo-Listama

© Emirates Business 24/7 2008