Gulf state follows in footsteps of US and Europe in setting up emergency lending facility

The United Arab Emirates' central bank has launched an emergency funding facility of 50bn dirham (£7.34bn) for bankers in the Gulf as fears over the global credit crunch increase.

The launch of the funding facility echoed moves by the US Federal Reserve and the European Central Bank.

Because foreign speculative money coming into the UAE has largely dried up, banks have less cash to lend each other, sparking the same clamour for liquidity that has affected the UK market.

With Dubai's property market seen as increasingly fragile, a freeze in lending similar to that suffered in the US and European markets could be disastrous.

Robert McKinnon, head of equity research at Al Mal Capital, said: “Dubai is not an island. Global liquidity is as important to this market as it is elsewhere.”

McKinnon said that although a collapse in property values is not yet in sight, the market has stagnated in recent weeks.

He said: “The cost of capital is increasing, and a slowdown or correction in real estate pricing is inevitable. The margins are still healthy but it is getting harder.”

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