Banks in the United Arab Emirates should bring down interest rates on loans as much as possible since they are awash with liquidity, a daily on Monday quoted the country's central bank governor as saying.     

Bank deposits in the world's No.3 oil exporter rose in March to their highest level in at least more than two years as depositors stored money in banks due to social unrest in the region. However, UAE banks remain hesitant to lend following Dubai's debt woes and weakness in the property sector.

'Those borrowers, especially merchants and businessmen, are complaining about high interest margins on their banking facilities,' Sultan Nasser Al-Suweidi told heads of UAE banks, according to daily Khaleej Times.

'The key question is that banks change terms of their banking facilities in agreements ... and of course, as you know that borrowing is the basis for growth and prosperity of the banking business, therefore, I would urge you to reduce interest rate margins on loans,' he told bankers on Sunday.

Deposits in the country's banking system stood at 1.105 trillion dirhams ($301 billion) in March, up 5.3 percent since the turmoil in the Arab world started in December, central bank data showed.

However, UAE private sector credit was up only 2.0 percent year-on-year in February, a second monthly rise in a row following at least 13 consecutive months of declines. It showed annual growth rates of above 50 percent at the height of the oil and property boom in 2008. - Reuters