The UAE Central Bank has released its proposed frame work for banks on the industry's exposure to the real estate sector, noting that exposures above a set threshold will be subject to additional regulatory requirements.

"The refined measures are expected to improve flexibility for bank lending to the real estate sector, while ensuring that banks with higher real estate exposures, above a set threshold, will be subject to supplemental regulatory requirements," according to a statement from the Central Bank.

In addition, through the application of a backstop, the proposed measures avoid excessive real estate exposures and encourage banks to maintain diversified assets, the statement said.

The Central Bank has invited banks to provide comments on the proposed framework through the UAE Banking Federation by 31 October 2019.

The statement said the primary objective of the proposed framework is to enhance financial stability by re-designing regulatory measures aimed at exposures of banks to the real estate sector. The framework, it noted, has been prepared in line with the Central Bank’s ongoing regulatory developments and in conjunction with a comprehensive assessment and third-party validation by international experts.

Earlier this month, in a move to ease home mortgages, the central bank directed banks to replace the 3% early settlement fee that was introduced in 2018 with one percent of the outstanding balance, or 10,000 UAE dirhams.

"There is a draft paper for real estate lending with the UAE Banks Federation (UBF) and the banking sector which will review and give feedback to have a proper policy in lending cap for the real estate sector," said Abdul Aziz al-Ghurair, head of the United Arab Emirates Banks Federation, on the sidelines of a conference on Monday.

"This is to protect the whole economy, you can’t have all your lending in one sector. If the sector is impacted, the whole banking industry gets impacted, this is a prudent decision," he added.

(Writing by Seban Scaria seban.scaria@refintiv.com , editing by Anoop Menon)

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