• Emirates Interbank Offered Rate (EIBOR)

    What is EIBOR?

    Launched in 2009, EIBOR or Emirates Interbank Offered Rate is the rate of interest charged by various banks for interbank transactions in the United Arab Emirates. The Emirates Interbank Offered Rate is, therefore, the reference rate which is fixed by the EIBOR panel and followed by various lenders and borrowers for holding various financial transactions in United Arab Emirates. It is important to note that several Islamic financial institutions follow EIBOR to zero in on rental rates for Ijara or leasing agreements. Akin to the London Interbank Offered Rate (LIBOR), there are EIBOR futures contracts open for trading in the United Arab Emirates. EIBOR also forms the benchmark used by many banks in the UAE for determining mortgage variable rates (most banks base their interest rate at EIBOR to which a percentage is added as a margin).

    How is EIBOR determined?

    EIBOR is set by a panel comprising 11 banks which conduct their operations in the United Arab Emirates. The EIBOR ‘fixing’ is scheduled every day for smooth financial transactions in the UAE. The EIBOR is not constant and may vary every day. More often than not, EIBOR may change by a fraction on a daily basis. The EIBOR panel may determine the long term rates - three or six months as well depending on several factors including the maturity period. In most cases, leading banks follow the EIBOR set for a three-month period rather than EIBOR for one-year or six months.

    How does EIBOR affect banks and consumers?

    The EIBOR may fall for various reasons including greater liquidity in the banking sector in the UAE owing to lower rates of interest at Federal Reserve or flush of deposits from countries such as Syria, Tunisia and Egypt among others which may be affected by political uncertainty and economic instability. When EIBOR comes down, the lending costs will also decrease. Customers should, therefore, avail of lower interest rates on their credit cards and personal loans if the interbank rates or EIBOR plummets. In other words, if lending between various banks becomes cheaper, it should translate to lower borrowing costs as well.

    How is it EIBOR calculated?

    The Central Bank of UAE determines the EIBOR rate and publishes it daily on its official website. Leading banks in the UAE submit their daily rates to the Central Bank. The Central Bank of UAE then cancels the two highest and lowest interest rates to arrive at the average rate for various loan durations (one week to one year). The EIBOR rate is, therefore, the average of the rates submitted by banks in the UAE. If case any bank does not submit its rate to the Central Bank, then the latter will consider the former’s last submission. The website of Central Bank of UAE publishes daily, weekly, monthly and yearly rates (averages) up to 5 decimal points. The EIBOR rate is, however not published on National Holidays and Saturdays or Fridays in the UAE. For instance, the EIBOR from 0.38857 in January 2015 to 0.41714 in the middle of June 2015.

    Do all banks in the UAE use EIBOR?

    EIBOR has been mired in controversy in the past with some major banks disassociating themselves from the panel following a scandal in the United Kingdom. The EIBOR was based on LIBOR or the London Inter-Bank Offered Rate. LIBOR is the rate at which banks in the UK lend to each other. However, a scandal which broke out in the UK in 2012 led to some banks in the UAE losing faith in the in the panel. Consequently, some banks set their own interest rates. Consumers should, therefore, be aware of the system followed by their lenders to calculate mortgages, as it will have a direct bearing on the monthly repayments.

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