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04 November 2019

UAE plans to loosen cap on bank lending to property industry

Under the proposed changes, lenders will be allowed to exceed the 20 per cent cap, but they would have to incur a capital charge.


The Central Bank of the UAE (CBUAE) is working on new rules that will loosen the cap on bank lending to the struggling real estate industry.

Mubarak Rashed Al Mansoori, the Governor of the CBUAE, said that currently, UAE banks can lend as much as 20 per cent of customer deposits to the property industry—that will be raised to a still-undecided figure but lenders that exceed 20 per cent would incur a capital charge.

 “We need to be flexible,” Al Mansoori said at a conference. But banks would “need to assess the risk-return profile of this investment. Is it worthwhile, do I want more capital?”

Banks in the second-biggest Arab economy have called on policymakers to loosen the limit amid a property slump that has affected lending.

“So, we came to the view that we need to be flexible if a bank wants to lend higher than the cap—there is a higher overarching cap they cannot even if they want—yes, they need to more capital,” said Al Mansoori.

Al Mansoori said that UAE lenders will have to access the risk-return profile of any decision to lend beyond the cap and must decide if it is worthwhile to inject more capital, adding that the draft of the regulation is with the UAE Banks Federation, which is discussing it among its members.

The regional real estate market softened following a slump in oil prices in 2014, coupled with the current global economy slow economic driven by rising trade tensions between China and the US.

Additionally, concerns about an oversupply of properties have also cooled prices in both residential and commercial segments of the real estate sector—with other developers calling for Dubai to halt all new home construction for one or two years to avert an economic disaster brought on by continued oversupply.

The Dubai government recently set up a new real estate committee to ensure a better supply balance in the emirate through greater collaboration between government-related entities and private sector companies.





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