U.A.E. Banks Seek 5 Years to Comply With Exposure RuleDana El Baltaji and Stefania Bianchi
Banks in the United Arab Emirates are seeking five years to comply with a central bank regulation to limit their exposure to government entities in the second-biggest Arab economy.
The banks are also seeking to exclude marketable bonds and sukuks from the proposal, according to an e-mailed statement today from the U.A.E. Banks Federation.
The central bank said in April 2012 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, and must comply with the new regulations by Sept. 30, 2012. There was no limit under previous rules. The central bank in December delayed implementing the regulations.
Many U.A.E. banks experienced an increase in bad loans linked to debt restructuring by state-owned businesses including Dubai World, which roiled global markets in 2009 with its request to delay payments on $25 billion of loans.
“Given the high levels of concentration and dominance of large government-related borrowers, five years is a reasonable time frame,” said Khalid Howladar, senior credit officer at Moody’s Investors Service in Dubai. “This should allow for orderly reductions in concentration both through natural amortisations and repayments, as well as loan sales.”
Emirates NBD PJSC’s investments in sovereign and quasi-sovereign clients is 192 percent of regulatory capital, while that of National Bank of Abu Dhabi PJSC is 199 percent, according to estimates from Deutsche Bank AG last April.
Total bank lending to the government and its companies rose to 230 billion dirhams ($63 billion) at the end of 2011, or 21 percent of the total, the International Monetary Fund said in a report last May. That compared with 205.6 billion dirhams, or 20 percent for 2010.
The banks federation said today that the central bank postponed the September deadline to allow lenders to “study, evaluate” the new rules and to revert back to the regulator with a final proposal.