Official UAE news agency WAM reported this week that the Central Bank of the UAE (CBUAE) has set out rules to govern ratio requirements to which all banks must adhere to ensure their liquidity and solvency.
The new regulations are in line with Part Three, Chapter Two, of Union Law No. (10) of 1980.
The CBUAE will monitor bank credit exposure limits :
– whether banks operating in the UAE are following credit policies and exposures that are deemed to be prudent
– whether the risk arising from an excessive concentration of credit to a single borrower or to a group of related borrowers may endanger solvency.
Banks with exposures that do not conform to the new limits at the date on which they come into force will be required to improve such exposures at the rate of 20 per cent per annum, leading to full compliance with the limits in five years.
Large exposures must be reported to the CBUAE on a consolidated quarterly basis.
The CBUAE may, in the future, exempt certain exposures from the reporting requirements.
Exposures to members of a bank’s board of directors, or of a similar designated body, must be reported to the Central Bank on a quarterly basis.
Exposures to banks operating outside the UAE, irrespective of their maturity, are not allowed to exceed 30 per cent of a bank’s capital base.
The same limit applies to exposures of branches of foreign banks to their head offices and other branches abroad, as well as to foreign subsidiaries and affiliates. This limit also applies to the exposures of UAE-incorporated banks with regard to their foreign subsidiaries and affiliates.
Banks must have strict, board-approved policies to cover potential conflict of interest where loans are issued to staff members on a ‘stand- alone’ commercial basis.
Loans for business purposes should be separately classified as commercial loans and approved on an ‘arms- length’ basis.
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