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UAE lenders expect six-month extension on loans regulation: Analysts
Banks in the UAE, facing a soon-to-expire central bank deadline to comply with new regulations that cap lending to governments and its entities, may get yet another six months to fall in line with the new loan rules, banking analysts said.
The UAE Central Bank in April had given banks until September 30 to comply with the new rules that forbid banks from lending more than 100 per cent of their capital to local governments and the same to government-related entities, or GREs to help reduce risk.
With hardly a few days left for the end of the deadline, most banks are expecting a deadline extension from the regulator.
Bank of America Merrill Lynch said on Thursday that it expects the deadline to be extended by six months. “We expect the start of implementation to be extended by another six months to end of the first quarter of 2013, and include exceptions that would not derail the overall Dubai government-related entities’ refinancing process,” analyst Jean-Michel Saliba wrote in a research note.
The central bank has been holding separate discussions with each bank about the rules. The Emirates Banks Association, a body representing UAE banks, led discussions with the central bank earlier.
While announcing the new regulations, the regulator had made it clear that it would not exempt any bank from the regime that caps banks’ lending to local governments and GREs.
The central bank’s move was aimed at reducing concentration in banks’ loan portfolios and the excessive exposure of local banks to state firms. Analysts and economists view the move by the central bank as very decisive step to prevent any further corporate debt crisis.
Bankers say they are in the dark, even as the deadline neared, about the implementation of the rules. They say the central bank had not communicated on the subject in recent weeks. The International Monetary Fund, or IMF, said in a report that the UAE authorities had acknowledged there was a risk GREs would turn to domestic banks to fund themselves if they cannot secure external financing. The new central bank curbs would reduce this danger if they were properly enforced, the IMF said.
“Effective implementation of the recently introduced aggregate limits on bank lending to GREs will help contain banks’ risks from GREs,” the IMF said in a report following its annual consultation on the UAE.
National Commercial Bank said in a study that the UAE is enforcing the tightest banking regulations in Gulf region and this is hindering rapid growth in their asset and credit base. “The GCC banking sector remains in generally robust health and eager to expand its asset base, although the regulatory and liquidity constraints in the UAE appear somewhat tighter than in the rest of the region.”
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