UAE central bank removes the cap on real estate loans

UAE central bank removes 20% cap on real estate loans, Banking Federation chief says

The Central Bank of the UAE lifted a 20 per cent cap on real estate lending as a percentage of the total deposits of banks, the chairman of the UAE Banks Federation said.

The restriction was removed through a law issued in October, however, a new ceiling on lending was not put in place, Abdul Aziz Al Ghurair said on Sunday in Dubai. The banking body is working with the regulator to “define what is real estate” and whether loans for assets such as hospitals, schools, malls and mortgage lending, where the source of repayment is the salary of the borrower, can be classified as real estate loans, he added.

“With the new law, there is no restriction … it has been lifted,” said Mr Al Ghurair. “The 20 per cent cap on loan exposure to banks was prescribed in the law No 10 and that has now been abolished.”

A spokesman of the Central Bank could not be reached immediately, and the regulator did not reply to questions seeking clarity on the issue.

A law was issued by President Sheikh Khalifa on October 28 replacing legislation from 1980, raising the capital of the Central Bank to Dh20 billion. It also called for the establishment of a general reserve of up to four times the paid-up capital of the regulator. The decree also sets three major objectives for the regulator: protecting the stability of the financial system; ensuring prudent management of foreign reserves and maintaining the stability of the national currency to achieve balanced growth of the national economy.

A Central Bank statement on the new regulation, however, did not specifically address the issue of the removal of the real estate loan restrictions.

The fixed 20 per cent cap, Mr Al Ghurair said, has now been replaced with a more flexible policy whereby the central bank may choose to impose the restrictions on the banking sectors’ loans to the real estate sector, depending on its views on the health of the realty sector in the economy.

“In the past, it was prescribed in the law so the central bank had no choice but to apply. Today the Central Bank may say 20 per cent or 10 per cent or 30 per cent overnight,” he said. “The flexibility is with the central bank, which is the right thing to do as these are tools you use depending on the cycle of the economy.”

There’s no timeline as to when the regulator will define which loans will be classified as real estate sector loans in the UAE, he noted.

“It’s a work in progress," Mr Al Ghurair said. "We [Banking Federation] have given what we think [is right] and we are waiting from the central bank to decide what will go into that [real estate sector loans],” he said. “That’s a $100m question”.

Separately, bank loans are projected to grow 5 per cent next year, Mr Al Ghurair said.

Most of the banks in the UAE have gone through the worst cycle of lending growth and write-offs for bad loans, he said, adding: "Now what we have is the business as usual [and] provisions, depending on what business you are in.”

Banks in the UAE are forecast to maintain strong capital and profitability as government infrastructure spending in Dubai, as well as Abu Dhabi's fiscal stimulus package,  will bolster economic growth, Moody’s Investors Service said in a report last week.

The UAE Central Bank expects growth to reach 2.8 per cent this year and 4.2 per cent next year. The banking sector overall is also expanding with credit growth to the private sector rising 6.5 per cent in the first nine months of this year, Mubarak Al Mansoori, the Central Bank's Governor, said last week.

UAE issues new rules for online payments

The UAE Central Bank on Wednesday issued new regulations for "stored value digital payments".

In a statement, the central bank said that the rules were finalised after an extensive consultation process over many months with the relevant stakeholders.

The objective of the regulations is to facilitate 'robust adoption of digital payments across the UAE in a secure manner', it said.

The Governor of the Central Bank Mubarak Al Mansoori said: "The issuing of these regulations is a landmark in supporting the government of UAE's vision to position the country as a global leader in digital services, via a knowledge-based and innovation drove the economy. The regulations are also designed to foster financial inclusion in the UAE."

The statement said that the regulations specify four licence categories under which entities can provide digital payments services. They are: (a) retail; (b) micropayment; (c) government; and (d) non-issuing.

"Each category is subject to a particular set of regulatory requirements with a view to providing protection for the UAE Payment System and Consumers," it said.

"The central bank recognises that Fintech development will play an important role in shaping the future of the financial services industry in the UAE. The central bank stands ready to support this innovation," the statement further said.

"The central bank will continue to take a lead role in implementing this new regulatory framework for digital payments with the aim of positioning the UAE as a global leader in trusted digital payments services, which are accessible to all consumers in the UAE," it said.

Bounced cheque can lead to freeze tenant's account in Dubai

The Rental Disputes Centre (RDC), the judicial arm of the Dubai Land Department (DLD), and the UAE Central Bank have signed an agreement that allows for freezing of the bank account of a tenant if his/her rent cheque bounce.“After the judgment is passed by the RDC, it will be informed to the Central Bank, which will pass the information to the banks. It could also lead to blocking of tenant’s bank account,” a DLD spokesperson said.

“This process will now take two days instead of 60,” the spokesperson added.

In a statement, the DLD said the aim of the MoU, signed by RDC Director Abdulqader Musa Mohammed and UAE Central Bank’s Assistant Governor for Banking Supervision, Saeed Abdullah Al Hamiz, was to create an electronic framework of cooperation to facilitate the implementation of decisions and judgments.

The proposals will speed up procedures and reduce transaction time from six months to two working days following the transition from paper-based to electronic systems. Both parties agreed to establish a platform utilising the UAE Central Bank’s existing Customer Information Request (CIR) system.

As per the agreement, the Central Bank will direct queries submitted by the RDC to enable the efficient execution of judicial committee decisions and judgments. These verdicts will be directly implemented by the banks, which will also provide immediate responses to enquiries.

RDC’s Mohammed said: “This move is consistent with our ongoing efforts to improve upon existing frameworks of cooperation with official bodies, with the aim of improving government procedures and promoting cooperation between all institutions.

“It is expected that this MoU will pave the way towards promoting transparency for all property transactions and procedures, benefiting all parties and guaranteeing the protection of their rights.”

The number of RDC judgments to be implemented for 2016 stands at 2,630, all of which will all now be rapidly implemented by the effective system set in motion as an outcome of this MoU, he added.

UAE Central Bank’s Al Hamiz emphasised the vital role that the RDC plays in supporting the stability of the national markets and in upholding transparency, providing greater peace of mind and ensuring a higher level of security for all parties involved in property contracts.

“The CIR system at the Central Bank has safeguarded stability across many of Dubai’s industry sectors and we are certain that this will also be the case for our cooperation with the RDC and DLD. Our plan will help the emirate’s real estate sector by maintaining the rights of all parties, ensuring justice through the fair and efficient application of the provisions of UAE law,” he said.