The UAE central bank will enhance its control of banks’ real estate exposure
The UAE Central Bank said on Monday that new, more favorable regulatory norms regarding banks’ exposure to the real estate industry will be implemented.
The new rules will apply to all types of on-balance-sheet loans and investments, as well as any off-balance-sheet exposures to the real estate industry, and will take effect on December 30, 2021. The regulations also modify definitions, size, and supervision to carry out the best possible exercise in financial institution real estate financing and risk management.
The entire criteria compel banks to examine and improve their internal policies to improve good underwriting, valuation, and modern risk management for their real estate exposures. The new approach also includes the dimensioning of such exposures, which is based entirely on credit score hazard-weighted property and the Central Bank’s capital adequacy standards.
According to the regulator, banks with higher hazard-weighted real estate exposure in their portfolios may face a more stringent supervisory review of their underwriting and risk management processes in this area. The new rules will be phased in over a year, during which banks will be expected to update their operations to comply with the new Standards.
Throughout the statement time, the apex financial institution will compare those standards based on a supervisory evaluation. “Banks will continue to play a key role in financing real estate and construction, both of which are critical sectors of the UAE economy. The CBUAE has developed a one-of-a-kind risk-based approach to enhance the tracking and supervision of financial institution real estate exposures. The UAE Central Bank Governor, Khaled Mohamed Balama, noted, “These new Standards will enhance first-rate practice in real estate finance inside the UAE, as well as support the protection and soundness of our economic system.”
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