UAE Central Bank decided to increase oversight of banks’ real estate exposures

The Central Bank of the UAE has stated that they will use new criteria to monitor banks’ exposure to property. An enhanced framework will cover all kinds of on-balance-sheet loans and investments, and off-balance-sheet exposures to the real estate sector.

Rules of the new criteria will be aimed at the refinement of definitions, supervision and measurement, which allows the adoption of best practices in the sphere of bank property financing and risk management. It will require the review and improvement of banks’ internal policies and enhancing the underwriting reliability and valuation.

Prices for residential property in the emirate of Dubai have been falling since 2014 because of the high supply and weaker market demand. This has led to the increase in banks’ bad loans. But in 2021, the real estate sector bounced back due to an early easing of COVID-19 restrictions and a successful vaccination rollout of the UAE population. According to the statement from the Central Bank, underwriting and risk management practices of banks, which have higher risk-weighted real estate exposure in their portfolios, will be reviewed more extensively.

New standards will enter into force on 30 December 2021 and banks will have one year to enhance their practices in accordance with the newer requirements. The central bank will also evaluate these standards based on a supervisory review during the observation period. New methodology includes measurement of exposures based on credit risk-weighted assets with the use of capital adequacy standards of the CBUAE.

Earlier in June of this year, the Central Bank of the UAE also launched an anonymous portal for illegal financial actions in order to comply with the programme of ‘the highest standards of integrity and transparency’. The whistleblowing portal is an encrypted channel that allows internal and external stakeholders to anonymously report or raise any concern regarding illegal operations of contractors, employees and representatives. Users also can attach documents and files in support of their particular claim.

Another important event for Dubai in the economic sector is the statement from the Dubai World Trade Center about its intention to become a crypto hub. DWTC will work with the private sector to create an “attractive environment” for the virtual assets and cryptocurrencies sphere, including operators, exchanges and digital assets. According to the statement of DWTC, this move is part of a government programme to create new economic sectors.

The crypto hub will enforce standards for investor protection such as anti money laundering measures and tracing of cross border deal flows. In the future, it plans to create virtual assets and markets in Dubai, as well as introducing new trends, which are based on advanced basic blockchain technologies, such as, for example, cryptocurrencies.