The UAE bank lending growth rate is “reasonable” and projects in the country will not suffer from funding shortages due to impending problems banks in the eurozone face in the backdrop of the debt crisis, Sultan bin Nasser Al Suwaidi, UAE Central Bank Governor, said in Dubai on Friday. The governor, who addressed delegates at the 51st ACI Financial Markets World Congress in Dubai, told reporters that the UAE banks’ lending rate has been close to 3.5 per cent, which “is reasonable under the circumstances.” He said the eurozone crisis and tighter banking regulations adopted globally could restrict sources of funding and pose challenges to the future expansion of global financial markets. “You have to accept that you will be facing challenges to funds available to... countries. Those funds will be reduced terribly...” on the back of new and tighter banking regulations adopted globally through the implementation of Basel II and Basel III rules,” the governor said. “Reduced loans to trade financing are the other challenge.” He said the UAE is doing well and it has become the centre in the region for trade, tourism and business transactions. The UAE trade surplus with the US was $11.7 billion in 2010 and $23.2 billion with the EU, he pointed out. Al Suwaidi said although banking industry across the world is to be impacted by the new capital adequacy requirements under the Basel III and other new international banking regulations, banks in the UAE are in comfortable position. UAE banks boast one of the highest capital adequacy ratios in the world. While the 2008 global financial crisis exposed bank-lending excesses in the oil-reliant UAE economy, bursting a property bubble and triggering a $25 billion debt restructuring of Dubai. World in 2010, most UAE banks have large capital cushions by international standards. They also have been relatively unhurt by the eurozone debt crisis because they have only minor exposure to Europe. According to Standard & Poor’s, the regulatory capital adequacy ratios the UAE are “in the high teens and in some cases up to 20 per cent” which are already above the minimum set in the Basel III proposals. Moody’s Investors Service in a recent observation said while bank-lending growth in the UAE was to remain subdued, banks had increased their capital over the past two years, and the system average Tier 1 for year-end 2010 was 14.3 per cent. Moody’s also considers the UAE banks’ liquidity metrics to have significantly improved, a trend that has been reinforced by progress in liquidity risk management at many UAE banks. Al Suwaidi described the central bank’s monetary policy as good when asked the possibility of a change in its monetary policy. The governor has repeatedly said in the past that the UAE banks have enough liquidity to meet the local market’s demands and that they are not exposed to eurozone debts. However, despite some recovery, bank lending remains sluggish. Provisions against bad loans rose to a record Dh55.3 billion in December, up 25 per cent from a year ago, central bank data show. Moody’s said recently that funding for an estimated $1.8 trillion of capital investments underway in the GCC would be in danger with banks in the region facing a severe cash shortfall in the wake of cutback of lending by European banks. The ratings agency argued that GCC banks would have to face a short-term liquidity squeeze and a long-term structural shortfall in the event of “a sustained retrenchment” by European banks from the region. Overall, European bank lending to the GCC region amounted to around $237 billion as of September 2011. As the European banks continue to pull out from non-core markets or reduce their exposure in such markets in the wake of a deepening debt crisis, it is inevitable that Gulf banks have to confront a funding gap, Moody’s said in its latest report.