Even as the recession-hit developed markets are tightening banking regulations with a view to strengthening the capital base and risk management system in the banking industry, the Central Bank of UAE has proposed new regulations for wholesale banks, mortgage loans and protection of consumers.

A statement from the apex bank has also said it has instructed further study and amendments to the draft regulations on classification of loans and allocation of provisions, which the Central Bank has issued recently.

The 14th meeting of directors of Central Bank of the UAE was held last week, and presided over by Khalil Mohammed Sharif Foulathi, Chairman, and attended by Sultan bin Nasser Al Suwaidi. 

About two weeks ago, the Central Bank had sought views from the banks on a 25-year-old regulation for "loan classification and provisioning". Central Bank basically intends to redefine the loan classification regulations in order to bring them in line with that existent in the developed markets.

Banking sources told Emirates Business that most banks have sought a tightening of rules that define "classified loans".

"The key difference is in the definition of 'sub-standard loans'," they said.

While the Circular No 313 states that this category of loan includes loans and advances in which payment of principal is in arrears beyond 180 days, the new regulation stipulates the limiting period as 90 days.

"Addressing loan classification and provisioning in the context of International Accounting Standards (IAS) and Basel II regulations is still a daunting challenge to the banking industry in this part of the world," a senior accounting professional said.

Bankers whom this newspaper contacted said it would always be prudent to establish innovative risk management system in wholesale banking and investment banking.

"Some banks incentivize excessive risk-taking which could lead to the build-up of non-performing assets (NPAs) in the banking system," a banker said.


2010 budget reviewed

The UAE Central Bank said yesterday it expected its net earnings in 2010 to be slightly lower than 2008 profits despite high expenses.

The Bank's Board of Directors discussed the 2010 budgets and said total revenues could surpass Dh5 billion in 2010. "The board reviewed the projected budget for the fiscal year 2010, and adopted it as follows – total expected revenues of Dh5.170 million – total expected expenses of Dh1.470m, including interest expense on Certificates of Deposit, and with expected net profit of D3.700m," it said.

The statement gave no forecasts for the 2009 performance but bankers expected earnings to be almost equivalent to the 2008 profits. Previous balance sheets showed the Central Bank's net profits edged up by 1.4 per cent in 2008 but its assets fell because of massive withdrawal of funds by the UAE banks to offset liquidity shortages.

From nearly Dh3.7bn in 2007, the Central Bank's net earnings grew to about Dh3.8bn in 2008. The profit growth was sharply lower than that achieved in 2007, when net income shot up by a staggering 42 per cent from the 2006 net profits of around Dh2.6bn.

The surge in 2007 profit was a result of sharp rise in the Central Bank's assets mainly because of a massive increase in certificates of deposits issued by the Central Bank to the 24 national banks.

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