Central Bank plans more checks

The Central Bank plans to introduce more regulatory measures that could require lenders to declare non-performing loans earlier and set tighter controls on the mortgage market. The steps, discussed at a board meeting last week, included suggestions for rules covering "wholesale banks, mortgage loans and protection of consumers of financial services", a Central Bank circular said.

The bank is seeking to gradually align its regulations with international best practice after the global financial crisis. The local banking system has capital adequacy ratios far above international standards but the economic crisis and the collapse of property prices has revealed its shortcomings. The Central Bank last month asked lenders to halve the time required to classify a loan as non-performing. Under current official guidelines, a loan becomes non-performing when payment is more than 180 days overdue.

The move will align UAE regulations with international standards. But most banks said they were already declaring loans non-performing after 90 days. Rick Pudner, the chief executive of Emirates NBD, the country's largest bank by assets, said it was "already providing prudently for non-performing loans and more conservatively than the [Central Bank] guidelines". The economic crisis has led to a substantial rise in non-performing loans in the Emirates. On average, they now account for about 2 per cent of all bank lending, but many economists have warned this figure could rise as high as 10 per cent for unsecured personal loans and credit cards.

So far, local banks have set aside US$2.2 billion (Dh8.08bn) in provisions in the first nine months, up from $801 million for the same period last year. Combined nine-month profits were down almost 14 per cent. The lack of a national credit bureau that all banks must co-operate with has made it hard for bankers to assess risks when lending, especially when giving out credit cards, unsecured personal loans and mortgages.

Because individuals cannot declare bankruptcy, some with unmanageable debts have been forced to leave the country, while others have been jailed after bouncing cheques. On September 1, the Central Bank cut the minimum Tier 1 capital ratio to 7 per cent and the overall capital adequacy ratio to 11 per cent. Banks were also required to increase Tier 1 ratio to 8 per cent by June 30 next year. The UAE has 24 local and 28 foreign banks. The Central Bank could not be reached for comment.

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