UAE Central Bank to increase oversight on banks' real estate exposures

The UAE Central Bank on Monday said new enhanced supervisory rules will be implemented about banks' exposure to the real estate sector.

The new rules, which will come into effect from December 30, 2021, will cover all types of on-balance-sheet loans and investments, and all off-balance-sheet exposures to the real estate sector.

The rules further refine definitions, measurement and supervision to adopt the best practice in bank real estate financing and risk management.

The comprehensive standards require banks to review and improve their internal policies to enhance sound underwriting, valuation and general risk management for their real estate exposures.

The new methodology also introduces measurement of these exposures, based on credit risk-weighted assets using the Central Bank’s capital adequacy standards.

The regulator said 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 new standards will start with a one-year observation period, during which banks will be required to enhance their practices to meet the new Standards.

The apex bank will evaluate these standards based on a supervisory review during the observation period.

“Banks will continue to play a crucial role in financing real estate and construction, which are vital sectors of the UAE economy. The CBUAE has developed a novel risk-based methodology to enhance monitoring and supervision of bank real estate exposures. These new Standards will enhance best practice in real estate financing in the UAE, and facilitate the safety and soundness of our financial system,” said Khaled Mohamed Balama, Governor of the UAE Central Bank.