Big lenders wary with new Central Bank rules on the way

Banks are pressing the Central Bank for an easing of a deadline to comply with new limits on how much companies can borrow from a single bank.

Rick Pudner, Emirates NBD's chief executive, said his bank was in breach of the limits and was seeking to clarify the new rules. Paulo Vecina / The National

The UAE's biggest lenders yesterday urged the Central Bank to ease new rules designed to limit borrowing by companies, and delay a looming deadline to comply with them.

In April, the Central Bank announced measures to limit the amount banks could lend to companies in an effort to mitigate risk and to protect them in the event of a cataclysmic default.

The new rules are set to come into force on Sunday.

But banks, including National Bank of Abu Dhabi and Emirates NBD, said they would be in breach of the limits when the deadline arrives as they have not been able to sufficiently rearrange their loan books.

NBAD has also raised "some major issues on the substance of the circular" announcing the reforms, a spokesman for the bank said yesterday.

"Given the 30 September date is imminent we have asked the Central Bank for an extension to give time for detailed and technical discussions to take place," a spokesman for the bank said. "We agree with the general direction of travel of the circular. Our discussions with the Central Bank have been constructive and positive."

Rick Pudner, Emirates NBD's chief executive, said his bank was in breach of the limits and was seeking to clarify the new rules with the Central Bank.

Under the rules, lending to governments and their non-commercial entities will be limited to 100 per cent of a bank's capital and 25 per cent for lending to individual borrowers.

The Emirates Banks Association is leading negotiations with the Central Bank over how the regulations are to be applied.

Banks fear that selling off large chunks of their loan books in a short period in order to comply with the regulations would lose them money.

It is also unclear to whom they would sell such loans and how.

"Are they going to sell to the other local banks?" said one banker, who asked not to be identified.

One possible workaround would be to prohibit new business with government companies for those banks in breach of the limits, but allow banks' existing exposures to remain, said Stuart Anderson, the regional managing director at Standard & Poor's, the credit rating agency, at a roundtable on Monday.

Other bankers have complained that the Central Bank has not communicated clearly or frequently enough about the rule changes.

The Central Bank confirmed that it held a meeting with chief executives yesterday, in which it discussed interest rates paid on personal loans to retail customers.

It did not mention the impending deadline for borrowing limits.

Nobody from the Central Bank was available to answer questions about the meeting yesterday.

The Central Bank has aimed to beef up the resilience of the financial system to fresh shocks since the global financial crisis in 2009.

This month it said it was creating a discount window to help stimulate interbank lending.

Rules planned by the Central Bank have proven contentious in the past. Banks were last year forced to scramble to comply with limits capping the amount they could lend for personal and car loans and on service fees.

Lenders were given a little over two months to meet those rules, but a sustained lobbying effort delayed their implementation by a month.