The UAE Central Bank recently introduced new legislation (No. 29/2011) setting limits for fees and commissions that banks can charge customers. What impacts will this new legislation have upon retail lending practices in the UAE?

BERRO: The legislation has some positive impact on the consumer finance market as well as some negative impacts. The only negative is the timing; it is too short notice for the banks to adjust, and more importantly for the consumer to adjust on the size and the tenors of the new terms of consumer financing that have been put in place. This is the only negative that I see. On the positive side, the new regulation will properly deleverage some of the consumer segments properly. That will regulate the abnormal long tenors of consumer finance of fifteen years and the large amounts. That will lead to a proper and more regulated credit market on the consumer level and this is something that will be beneficial to the market. As far as the fees are concerned, this has a very positive impact for transparency and for the consumer’s benefit. That will help the banks improve the level of services rather than only competing on pricing.

At present, what is the level of constraint on interbank lending? To what extent are UAE banks reliant on international capital markets? To what extent did the global financial crisis mandate an overhaul in regional financial markets?

BERRO: I do not see constraints on interbank lending and liquidity anymore. Now the market has been flushed with more liquidity. We noticed that interbank rates dropped from around 4.3% two years ago in the midst of the crisis to around 1.8% today. The major decrease in interbank rate is a sign of a liquid market. This was due to the intervention of the Central Bank during the crisis both through their liquidity injection and also by bank guarantees that they introduced guaranteeing bank deposits during the crisis. These two activities have clearly helped liquidity and the market and we do not see the dryness of liquidity that we saw during the crisis. We now expect that credit will be increasing and that is clear if we look at the level of deposits versus the level of financing. During the crisis in 2008, the level of finance was greater than deposits whereas now I think deposits are around AED 1.1tn ($299bn) and we have financing of around 95% of that, and we are starting to see a considerable increase in lending in the market. I think UAE banks before the crisis were very much reliant on international capital markets to finance their tenor mismatches between the short term and long term financing. This slowed down during the crisis because of the unavailability of capital. Now the capital markets are back again and the investor confidence in the UAE and in the UAE banking sector, we could see some banks going back to the international markets to raise some funds. This will be the case until a local or regional market is established for us to tap into.

What are your projections for bond issuance in 2011? How would you describe the appetite for high-grade (sovereigns and strong corporates) debt at present? How have regional tensions impacted debt and equity issuance?

BERRO: We project very strong bond issuance in 2011. Actually, in the beginning of 2011, we have seen a number of major bond issuances. With the political situation in the region, bond issuance has slowed slightly. We saw in April, Mubadala issued again and retested the market with a $750m issue that was very well received. In May, Sharjah Islamic Bank, HSBC, and Islamic Development Bank, all issued and we expect to see many more. All of them have been very well received. Abu Dhabi Islamic Bank was oversubscribed four times, Sharjah Islamic Bank was oversubscribed eight times, so the market is looking for more issuance and we expect growth in the bond market in 2011.

How do you respond to call by UAE Central Bank Governor, Sultan bin Nassir Al Suwaidi, for the creation of a secondary market for bonds by first-degree local companies?

BERRO: The call by the Governor of the Central Bank for the creation of a secondary bond market is very timely. First, we need a constant supply of bonds from the primary market in order for the secondary market to be established. In addition, there is further transparency and regulation that puts a framework around bond issuance and sukuk issuance that needs to be put into place.

What is the current situation with respect to the GCC monetary union? Does the appetite for a regional monetary union still exist, and if so, what are the major hurdles?

BERRO: Our understanding is that the GCC currency union remains on the table and remains a goal for most of the GCC countries. We know the UAE’s stance on that and we know Oman’s stance on that. The other GCC members are also actively working towards that objective. However, I would say that now, irrespective of where we are going, we need to sit back and review what is happening in Europe. With the sovereign debt crisis in Europe and calls for breaking up the Euro zone into various Euro categories, that should make us think that this could be a potential problem we could face in the future. So we need to be ready to take such actions in the future if a crisis happens and we need to be behind one another to support or bail-out of any debt crisis that may occur. We need to review what is happening in Europe. This provides many lessons for us as we are trying to develop a common currency.

What result has ‘federal unity’ in the UAE had upon investor confidence?

BERRO: I think federal unity in the UAE has proven itself during the crisis and post-crisis. It was very clear that the crisis hit the UAE hard. Many of the sectors were affected and liquidity was very dry as mentioned. We have not seen any defaults and we have not seen any bankruptcies or any major disruption to the economy. On the contrary, the UAE has passed through the crisis relatively unharmed. With the geo-political situation around us, the UAE has proven itself as a strong, safe haven for investors and is becoming a flight to quality market. This in my opinion is very much a direct result of the federal unity. Usually unity is tested during tough times and I think we went through tough times and we came out very strong.

Investors look for stable places, especially in the Middle East. Investors look for stable markets and the UAE has shown these qualities very clearly. Investors look for a properly regulated and transparent environment to do business and the UAE is at the forefront of that dimension. Investors are looking for a very advanced and dynamic infrastructure and I think the UAE is second to none in that area in the region. Investors are looking for markets that can whether storms and financial storms with a clear commitment to the future. If you want to be in the Middle East, the UAE has proven itself as the center of this region and truly the link between West and East.