The United Arab Emirates won’t extend its deadline for banks to comply with new rules that cap lending to governments and state enterprises, said Saif Al Shamsi, assistant governor at the central bank.
“The decision stands as is,” though each bank will be dealt with individually, Al Shamsi told reporters in Kuwait today. The deadline expired yesterday.
The U.A.E. central bank said April 4 that banks must not lend more than 100 percent of their capital to local governments and the same amount to government-related entities to help reduce risk. There was no limit under previous rules.
The Emirates Banks Association led discussions with the central bank, although talks are being held separately with each bank about the rules due to differences within portfolios, according to a spokesman for lender Emirates NBD PJSC, who declined to be identified because of company policy.
Many U.A.E. banks suffered from an increase in bad loans linked to debt restructuring by state-owned businesses including Dubai World, which shook global markets in 2009 with its request to delay payments on $25 billion in loans. Sovereign and government-related entity, or GRE, issuers have about $32 billion of debt maturing in 2012, including $15 billion in Dubai, the International Monetary Fund said in a March 14 report.
‘Breaching the Limit’
“My view is that banks would ask the central bank to give them time to run down large exposures naturally by allowing these loans to mature,” according to Shabbir Malik, an analyst based in Dubai at EFG-Hermes Holding SAE. “In the meantime, they wouldn’t be allowed to extend more loans to entities where the exposure is breaching the limit.”
The exposure of Emirates NBD, 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.
“This lending cap could potentially create opportunities for other banks who have some headroom available, and which aren’t as close to the GREs as other banks,” Malik said by phone today.
Bank of America Merrill Lynch economist Jean-Michel Saliba wrote in research note last week that he expected the central bank to extend the deadline by six months.