Bank releases financial stability report for 2013
The Central Bank of the UAE has said the current growth in the countrys real estate market is not driven by excessive bank lending, but rather by equity buyers and external sources of finance.
This stands in contrast to the era preceding the 2008-09 financial crisis, which was defined by rapid credit growth in the UAE.
However, the central bank emphasises that monitoring developments in the UAEs real estate markets and the banking sectors exposure to it continues to be a core financial stability priority.
A major market correction could harm lenders to the real estate sector, as failing prices would reduce the repayment capacity of developers, warned the central bank in its Financial Stability report 2013.
In the second half of 2008, just before the financial crisis hit the UAE in 2009, residential property prices peaked, with growth rates in some areas of Dubai exceeding 70 per cent a year, said the report. Within six months, this trend was reversed and prices bottomed out in mid-2011 in Dubai.
Since then, prices have been increasing again, with average residential sale prices rising by 24 per cent in Dubai and 21 per cent in Abu Dhabi in 2013. The central bank puts this growth down to rising investment from non-GCC citizens.
It says the UAE banks have so far played a relatively minor role in the real estate sector. The bank said that although property-related lending did accelerate in 2013, the sectors current exposure to the sector is AED287bn ($78.1bn), or under 23 per cent of total loans.
Funds from the banking sector were only enough to finance under 30 per cent of the residential property sales that took place in 2013.
The central bank concluded that its regulations such as caps on banks real estate exposure and mortgage loan regulations, which were introduced last year, have helped bolster the banking systems resilience.
Overall, the report highlighted the improving health of the countrys banks. UAE banks have limited exposure to offshore funding compared with the era between 2005 and 2008. National banks are now net lenders rather than borrowers to international money markets.
The banking sectors non-performing loan (NPL) ratio has peaked, the report found, and has lowered to 8.4 per cent.
Profitability of the sector also improved, with net profits in 2013 hitting AED31.6bn, compared with AED26.5bn in 2012. The sector is also more liquid, with the ratio of liquid assets to total assets improving from a low of 8.5 per cent in 2008 to more than 12 per cent in December 2013.