Business

UAE banks likely to get 5-year grace period over GRE loans

Banks are likely to be given a five-year grace period to comply with new rules limiting their exposure to government-related companies, says the chairman of the UAE Banks Federation.

Tom Arnold

November 04, 2013

Banks are likely to be given a five-year grace period to comply with new rules limiting their exposure to government-related enterprises (GREs), said the chairman of the UAE Banks Federation.

But Abdul Aziz Al Ghurair, who is also the chief executive of Mashreq, suggested that lenders would not be granted exceptions to the regulations. Some lenders had been seeking the exclusion of certain bonds and sukuk.

“There’ll be given a grace period but there will be no exceptions,” Mr Al Ghurair said on the sidelines of the GCC Banking and Financial Markets Conference in Abu Dhabi yesterday.

He said the rules would probably be issued by the end of the year.

Lending to GREs has come under the spotlight since the global financial crisis, when concerns emerged about the scale of banks’ exposure to indebted companies wholly or partly state-owned. The UAE’s Central Bank set limits in April last year, capping the amount a bank could lend to government and related entities at 100 per cent of its capital base. Lending to a single borrower would be curbed at 25 per cent.

The rules were suspended after some banks said they could not meet a September 30 deadline to comply with the new caps.

But as the regulator prepares to dust the proposals off a second time, some analysts have already expressed doubts about their enforcement.

"We continue to see little chance of a timely implementation of the UAE Central Bank circular setting large exposure limits, and see this as a tool for coordination and consultation rather than to force a disorderly GRE deleveraging process," analysts at Bank of America Merrill Lynch wrote in a research report released in September. The report estimated all banks' exposure to GRE debt was at 104 per cent.

The Banks Federation had requested a five-year grace period for the regulations to allow lenders to gradually adjust their holdings. The industry group had also proposed that bonds and sukuk be exempt.

Also yesterday, Mr Al Ghurair said banks were content with the mortgage caps introduced by the Central Bank last week. Home loans will be limited at 60 to 80 per cent of a property's value. For off-plan homes the maximum mortgage will be 50 per cent.

“It is a two-way discussion that went back and forth and we’re happy with it,” Mr Al Ghurair said.

tarnold@thenational.ae

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