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BofA Expects U.A.E. Central Bank to Extend New Lending Rules

The United Arab Emirates’ central bank may extend a deadline by six months for banks to comply with new rules that limit lending to governments and its entities, Bank of America’s Merrill Lynch unit said.

“We expect the start of implementation to be extended by another six months to end of the first quarter of 2013, and include exceptions that would not derail the overall Dubai government-related entities’ refinancing process,” analyst Jean-Michel Saliba wrote in research note dated today.

The U.A.E. central bank said April 4 banks in the U.A.E. must not lend more than 100 percent of their capital to local governments and the same to government-related entities known as GREs to help reduce risk. Banks had until Sept. 30 to comply. There was no limit under previous rules.

The U.A.E. central bank is holding separate discussions with each bank about the rules, a spokesman for Emirates NBD PJSC, who declined to be identified because of company policy, said. The Emirates Banks Association, a body representing U.A.E. banks, led discussions with the central bank earlier, although talks are being held separately with each bank about the rules due to differences with each bank’s portfolio, he said.

The exposure of Emirates NBD PJSC, the U.A.E.’s biggest bank by assets, to sovereign and quasi-sovereign clients is 192 percent of regulatory capital, while that of National Bank of Abu Dhabi PJSC and Abu Dhabi Commercial Bank PJSC, the second-and third-biggest U.A.E. lenders, are 199 percent and 108 percent, according to Deutsche Bank AG estimates in April.

“We have raised some major issues on the substance of the circular and still await the central bank’s response,” National Bank of Abu Dhabi said in an e-mail yesterday. “Given the 30 September date is imminent we have asked the central bank for an extension” for discussions to take place, it said.

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