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UAE Central Bank fears banks’ exposure to real estate sector

UAE Central Bank

UAE Central Bank has expressed concern over the possibility of local banks’ exposure the real estate sector.

The sector has been experiencing a state of stagnation recently.

The bank said it will use new standards to supervise banks’ exposure to the the most vital sector in the country.

UAE Central Bank confirmed it will introduce an “upgraded supervisory framework” that covers “all types of loans and investments in the balance sheet.”

The framework will cover all the exposures granted to the real estate sector outside the balance sheet.

UAE Central Bank

This will require “banks to review and improve their internal policies to enhance sound underwriting, valuation and general risk management for their real estate exposures,” it said.

Residential units prices in Dubai have been declining since 2014 due to oversupply and weak demand. This forced construction companies to reduce their workers and halt expansion plans. It also led to a high rate of bad debts at banks.

“Banks with higher risk-weighted real estate exposure in their portfolios will be subject to a more extensive supervisory review of their underwriting and risk management practices in this segment,” the central bank said.

Supporting the economy

The Central Bank announced the extension of its comprehensive plan to support the economy, until next June.

The Emirates Bank said, the comprehensive economic support plan directed with the aim of supporting the continuous recovery of the country’s economy.

The bank also announced that the precautionary measures regarding capital reserve requirements, liquidity and requirements for stable funding sources for banks will be extended for six months, until the end of June 2022.

All banks operating in the country will be able to take advantage of these measures to support a balanced and sustainable recovery, the bank said.

The extended capital reserve measures  include a temporary reduction of the capital maintenance margin and the capital reserve established for systemically important local banks.

Liquidity measures consist of a temporary prudential reduction in the liquidity coverage ratio, the qualifying liquid assets ratio, the net stable funding ratio, and the advances to stable resources ratio.

The bank had announced this year that the program to defer loan installments, included in the targeted comprehensive economic support plan, will expire on December 31.

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