UAE banks seek grace period, exposure limit
Abu Dhabi, July 15, 2013
Banks in the UAE are seeking a five-year grace period and the exclusion of bonds from planned central bank rules that will limit their exposure to state-linked borrowers, a banking industry body said on Monday.
In April last year, the central bank set limits for how much commercial banks could lend to state-linked borrowers, in an effort to reduce risks and prevent any repeat of Dubai's 2009-2010 debt crisis, when banks were hurt by heavy lending to state firms that ran into trouble.
Any bank's lending to the governments of the seven-member UAE federation and related entities was to be capped at 100 percent of its capital base, while lending to a single borrower would be curbed at 25 percent.
But after protests by local banks, some of which did not meet a Sept. 30 deadline to obey the new rules, the regulations were suspended. The central bank is now consulting with banks on a revised version of the rules.
A statement by the UAE Banks Federation said the industry body was proposing that banks have five years to comply fully with the new rules. This would allow them to cut their exposure to the state gradually if necessary.
The proposals ask that "marketable" bonds and sukuk be excluded from the limits, so that banks would not have to consider selling down some of their bond holdings.
The federation also urged the central bank to apply a "means and purpose test" judging the capacity of borrowers to repay, in order to determine whether the large-exposure regulations should apply to certain entities' debt.
The central bank has not said when the revised rules will be introduced, but it has said it wants to move forward without delay and commercial bankers think they could be launched this year. – Reuters