United Arab Emirates' banks have borrowed 80 per cent of a Dh25 billion ( $6.8 billion) government liquidity package allocated last month, a newspaper reported on Wednesday.

'The banking sector has used 80 per cent of that allocation which indicates the success of the government plans aimed at supporting national banks by injecting liquidity,' Al-Khaleej newspaper said, citing an official from a committee assigned to managing the impact of the global financial crisis.

The remarks by the unidentified official followed a meeting of the ministerial committee with representatives of national banks, it said.

The money is part of a Dh70-billion rescue facility. The finance ministry has set the interest rate on the first tranche of the emergency package - Dh25 billion - at the rate for 5-year U.S. treasury bonds plus 120 basis points or 4 percent, whichever is higher.

'The source said that the size and date of the second portion was yet to be determined, but said the committee has set a number of conditions and new facilities required to avail the second allocation to banks,' the newspaper said citing the source.

'The second position would be set in line with the banking market requirements which are currently under discussion by the finance ministry and the central bank with representatives from all the national banks,' it added.

The finance ministry has warned banks of penalties if they used the funds for speculation instead of providing loans locally, state news agency WAM said, without outlining envisaged penalties. Banks will be required to make interest payments every three months, it said.

States across the world's biggest oil-exporting region are trying to cope with the worst global financial crisis since the Great Depression, which threatens to restrain a regional boom.

The global turmoil has hit the Gulf region after six years of high oil prices allowed state and private investors to funnel billions of dollars into industry and infrastructure projects.

'The source said that the announced government plan to face the ramifications of the shortage in liquidity in international markets has started to bring about positive results in terms of the stability of the banking sector,' Khaleej said.-Reuters