The UAE Central Bank has reviewed amendments to the Financial Services Law, a draft designed to limit commercial banks exposure to financial shocks. The central bank said it has approved certain ratios for large credit exposures, but did not reveal what these will be.
A technical team has been assigned to review the legislation and is tasked with submitting a report to the board in its upcoming meeting, the central bank said in a statement on 4 August.
Last month, the UAE Banks Federation issued a statement asking the government to grant banks a period of five years to comply with the new regulation. It also requested for bonds and sukuk (Islamic bonds) to be excluded from it.
While banks in the region tend to be well capitalised and have significant liquidity buffers, it is important to preempt a new build up of vulnerabilities, according to the Washington-headquartered IMF.
Swift implementation of the planned new prudential regulations for mortgage lending and loan concentration would mitigate the risk of rapid credit expansion and undue loan concentration to the real estate and GRE [government-related entity] sectors in the future, the IMF said in a statement published at the end of July.
These policies should be complemented by developing a more formal and transparent macroprudential institutional and policy framework. The proposed new Financial Services Law provides an opportunity to establish the legal base for such a framework, it added.
Combined with a more developed local bond market, banks will be able to receive more support in liquidity management before the introduction of Basel 3, a set of global regulatory requirements that will become effective soon.
The implementation of large exposure limits was initially scheduled to kick off in September last year, but the government postponed it to give banks more time to evaluate the proposal.