Banks in the UAE are proposing a cap on lending to real estate companies to prevent overexposure to the sector, a top bank executive said.
Lending to the residential real estate sector stood at Dh243.5 billion in 2018, according to the UAE Banking Federation’s recently published annual report. Total domestic credit extended by banks stood at just over Dh1.5 trillion.
“There is a draft paper for real estate lending with the UAE Banks Federation and the banking sector which will review and give feedback to have a proper policy [on a] lending cap in real estate. The formula is in [the works],” said Abdul Aziz Al Ghurair, head of the UAE Banks Federation and chairman of Mashreq Bank.
Mr Al Ghurair made the comments while speaking at FinTech Abu Dhabi yesterday. He also said the proposal on the lending cap is still “in dialogue and could take a few months”.
“This is to protect the whole economy and lending. You cannot have all your lending in one sector. If the sector gets affected then the whole banking sector gets affected. This is a prudent decision,” he said, without revealing further details.
The UAE property market slowed after a drop in oil prices that began in 2014, as well as concerns about an oversupply of properties. However, experts have forecast a recovery on the back of government reforms to encourage investment. These include a new immigration regime offering long-term visas for investors, Dubai’s Expo 2020, Abu Dhabi’s Dh50 billion Ghadan 21 stimulus and changes to the emirate’s freehold property law.
The Dubai government also recently set up a new real estate committee to ensure a better supply balance in the emirate through greater collaboration between government-related entities and private sector companies.
Currently, loan growth for Mashreq and across the broader UAE market remains in single digits, Mr Al Ghurair said. On the prospects for loan growth next year, he said the UAE is in a better shape than much of the global economy.
"In Europe, we have negative interest rates – at least here, we don't have a lower interest rate … that does impact banks negatively because we have huge capital, shareholders' equity as well as huge deposits. The lower interest rates, the less banks will make money," he said.