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CBUAE now free to link banks' exposure to real estate to market strength

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A new law introduced last month abolished a cap dating from 1980 that restricted each bank’s lending to the construction and real estate sectors to a maximum of 20 per cent of total deposits.

Monday 12, November 2018 BY KUDAKWASHE MUZORIWA

The Central Bank of the UAE (CBUAE) now has the flexibility to set new exposure limits for banks to the real estate sector and can amend these to reflect market performance.

Abdulaziz al-Ghurair, Chairman of the UAE Banks Federation (UBF), said that flexibility is now with the CBUAE and the cap may come back, it will change from year to year depending on the performance of real estate.

The former cap did little to protect banks from being impacted by the rise in mortgage defaults and other bad loans during the UAE’s property market crash in the wake of the global financial crisis of 2009.

Lenders have provided the central bank with recommendations on what should be defined as real estate under any new restrictions, the regulator will then decide what limits should be introduced.

Now that the cap is lifted the central bank may say 10 per cent, or 20 per cent or 30 per cent overnight, added Al-Ghurair.

The UBF is also considering to ask the central bank to relax mortgage lending rules to stimulate a fragile market, reported Reuters.

TAGS : CBUAE, UBF, Real Estate , Construction

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