UAE lenders reach agreement with Central Bank on exposure to GREs

UAE banks have reached agreement in principle with the Central Bank on rules governing their exposure to government related enterprises.

UAE banks have reached agreement in principle with the Central Bank on new rules governing their exposure to government related enterprises (GREs), the head of the bankers' organisation said yesterday.

Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation (UBF), said that new limits on banks’ lending to GREs would be announced in the next two months, without announcing details of the deal.

He also said that new regulations on the maximum levels of mortgage credit would be agreed by the end of the year, confirming that Emirati nationals would be allowed to borrow up to 85 per cent of the value of their first home, while expatriates would be allowed to take 80 per cent in the form of a mortgage loan.

Lending to GREs was put under Central Bank scrutiny following the financial crisis, when fears arose that some banks had excessive exposures to government and quasi-government debt, endangering their balance sheets.

The Central Bank has proposed a rule that would limit loans to GREs and individual emirates to 100 per cent of their capital, but Mr Al Ghurair said it was likely the limit woud be reduced with the new deal.

“There will be some slight changes from previous levels, downwards, always downwards,” he said.

Some banks opposed the proposed new limits. In a study published this week, analysts at Bank of America Merrill Lynch said that UAE banks’ exposure to government debt was at its highest since the late 1970s, and concluded that there was little chance of the banking authorities enforcing strict limits.

Exposure of all banks to GRE debt was at 104 per cent, the report said, most of that built up when local banks were obliged to take on extra debt after international banks fled the region.

The IMF has also noted the high levels of loans extended by local banks to GREs, singling out the concentration of loans by Emirates NBD. Loans by the bank to the Dubai Government and related borrowers stood at Dh72bn at the end of 2012, according to the IMF.

Mr Al Ghurair, who is also chief executive of Mashreq, said: “An agreement [on GRE limits] is already finalised by the central bank. Now the central bank just has to announce it – I think in the next month, two months max. It’s already passed the board,” he said.

“We will have to wait and see what is the final decision. I’m sure some banks will seek time. There will be some slight changes but the good news is that other loans are growing so the overall proportion of GRE loans is shrinking.”

He added: “The Central Bank said: ‘This is the guideline and we’re willing to sit down with each bank and discuss with them how much time we’re willing to give and what they need to adjust’. If I tell you to lose weight – 10kgs now – you can’t. You need time – it can’t happen overnight.”

The National previously reported that the UBF was looking to have bonds and sukuk excluded from the limit and to allow banks five years to comply with the new rules instead of the six months originally given.

On new mortgage regulations, Mr Ghurair said: “I expect before the end of this year to be announced. It was discussed and the views of the UBF were taken. There is a general agreement on the levels”.

Mortgage levels have been a matter of discussion between lenders and the Central Bank for the past year, with the banks taking the line that the resurgent residential property market might suffer if maximum levels were set too low.

It has since been widely flagged that a deal has been struck allowing Emirati nationals to borrow up to 85 per cent of value for a first home, with expatriates allowed to borrow 80 per cent.

For a second property, the limits would fall to 75 and 65 per cent respectively, if a final deal is agreed.

Updated: September 17, 2013, 12:00 AM