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.
