UAE lenders have asked the Central Bank for permission to free up more money for the property and construction industries as they seek to revive credit growth in the second-biggest Arab economy.
The Emirates Banks Association, which includes HSBC and National Bank of Abu Dhabi, is recommending that the regulator exclude mortgage loans from the category of credit extended to other property projects, the chairman Abdul Aziz Al Ghurair said. Proposals also include raising to 20 per cent the ratio of deposits banks can lend to property, he said.
The push comes after banks lobbied to renegotiate curbs on mortgage lending introduced in December as they seek to spur a recovery in credit growth four years after Dubai property prices crashed amid the global financial crisis. Loans and advances rose 3.1 per cent in the year to November 2012, compared with 15 per cent in neighboring Saudi Arabia. Interbank lending rates fell to the lowest level since Bloomberg started tracking the data in 2006.
"We want mortgage lending to be set aside from property because it's completely different from commercial properties and shopping centers," said Mr Al Ghurair, who is also the chief executive Dubai's Mashreqbank.
Under current rules, loans made to finance infrastructure projects to build airports, roads, bridges as well as home purchases fall under the property category. The rule was introduced to curb default risk after one in every six loans signed before the Dubai property crash wound up classified as non-performing, according to data from Moody's Investors Service.
The rating company downgraded Dubai's biggest banks on December 7, saying they had not done enough to address the bad loans that piled up in the property crash. Banks in the city have set aside 30 per cent to 45 per cent of the value of the non-performing loans, compared with 72 per cent to 96 per cent for similarly rated lenders globally, Moody's said.
Loans for property at UAE banks rose 4.8 per cent in the third quarter to Dh251.2 billion from a year earlier, according to the central bank's most recent data. Deposits climbed 12.3 per cent in the year to November, the data show.
* Bloomberg News