The Central Bank of the UAE (CBUAE) announced today an enhanced framework to better monitor and supervise banks’ exposures to the real estate sector.
The new standards, which are set to come into effect on 30 December 2021, will cover all types of on-balance-sheet loans and investments, as well as all off-balance-sheet exposures to the real estate sector.
The rules aim to refine definitions, measurement and supervision, allowing for the adoption of best practices in bank real estate financing and risk management.
“Banks will continue to play a crucial role in financing real estate and construction, which are vital sectors of the UAE economy,” said Khaled Mohamed Balama, governor of the CBUAE.
“The CBUAE has developed a novel risk-based methodology to enhance monitoring and supervision of bank real estate exposures. These new standards will enhance best practice in real estate financing in the UAE, and facilitate the safety and soundness of our financial system,” he added.
The comprehensive standards will require banks to review and improve their internal policies to enhance sound underwriting, valuation and general risk management for their real estate exposures.
The new methodology also introduces measurement of these exposures based on credit risk-weighted assets using the CBUAE’s capital adequacy standards.
Banks with higher risk-weighted real estate exposure in their portfolios will be subject to a more extensive supervisory review of their underwriting and risk management practices in this segment.
The standards will start with a one-year observation period during which banks will be required to enhance their practices to meet the new standards. The central bank will also evaluate these standards based on a supervisory review during the observation period.
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