UAE Central Bank: No Exemptions From Banks' New Lending Limit

Wednesday, May 23, 2012

ABU DHABI (Zawya Dow Jones)--The United Arab Emirates central bank will not exempt any bank from a newly passed regulation that caps banks' lending to local governments and government related entities, or GREs, a central bank official said Wednesday.

"The regulation is made to be implemented by all [banks], and no one is exempted from it," Saif al Shamsi, the deputy central bank governor for monetary policy, told Zawya Dow Jones on the sidelines of a conference in Abu Dhabi.

In a recent directive, the regulator said banks must limit lending to emirate-level governments and government departments to 100% of their capital base. The move aimed to reduce concentration in banks' loan portfolios, which analysts and economists view as a potential risk to their future health.

Some lenders already appear to exceed the new limits, including Dubai-based Emirates NBD (EMIRATES.DFM). That bank, which is controlled by the Dubai government through the Investment Corporation of Dubai, had about 62.18 billion U.A.E. dirhams ($16.94 billion) of loans to Dubai at the end of the first quarter. The loans were about 130% of the bank's capital base, according to EFG-Hermes banking analyst Shabbir Malik.

A further 14% of Emirates NBD's loans were to government-related entities, a number of which restructured debt following the financial crisis. Dubai World, a government-owned conglomerate, last year finalized a $25 billion debt deal. Dubai Holding, a business group owned by Dubai's ruler, is still working out a $10 billion restructuring.

The International Monetary Fund said in a report this week that the U.A.E. authorities 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 are 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 fund said in a report following its annual consultation on the U.A.E.

Net exposure of the banking system to government and public institutions increased by 3.5% of the U.A.E.'s GDP last year, the fund added.

While banks have said they are in talks with the central bank about the effect of the new regulations, Al Shamsi said the regulator "has not discussed" the possibility of raising the lending ceiling or eliminating it for certain banks during regular meetings with lenders.

"Everyone has to comply with the new regulation by September," Al Shamsi said.

By Leila Hatoum, Dow Jones Newswires; +971-4-446-1686; leila.hatoum@dowjones.com; Twitter: @ZDJnews

(Asa Fitch contributed to this story)