UAE apex bank free to fix banks’ lending cap

dubai — The UAE’s central bank now has the flexibility to set new exposure limits for banks to the real estate sector and can amend these to reflect market performance, a senior commercial banker said on Sunday.

A new law introduced last month abolished a cap, dating from 1980, that restricted each bank’s lending to the construction and real estate sectors to a maximum of 20 percent of total deposits.

No new cap has been imposed, but Abdulaziz Al Ghurair, chairman of the UAE Banks Federation, said his federation has liaised with the central bank on what should be defined as real estate, suggesting a new cap could be looming.

“Flexibility is now with the central bank and it may come back and change [the cap situation] from year to year depending on the performance of real estate,” said Al Ghurair. “Now that [the cap] is lifted, the central bank may say 10 per cent or 20 per cent or 30 per cent overnight.”

Banks have provided the UAE central bank with recommendations on what should be defined as real estate under any new restrictions, AlGhurair told reporters. The regulator will then decide

what limits should be introduced, he said.

In other rules relating to the real estate market, the federation is considering whether to ask the central bank to relax mortgage lending rules to stimulate a fragile market, sources familiar with the matter told Reuters in September.

At the moment, first-time buyers of a home worth up to Dh5 million can only borrow up to 80 per cent of the property value if they are UAE citizens, while the cap is 75 per cent for foreigners.