New provisioning regulations soon

UAE banks will soon be required to adhere to fresh regulations related to allocations for classified loans.

The UAE Central Bank is said to be finalising regulations that pertain to setting aside allocations for personal, car and housing loans besides credit cards, Al Bayan has reported.

According to the report, the mechanism used in the new regulations involves setting aside 50 per cent of the debt portfolio after 90 days of non-payment of instalments, 90 per cent after 180 days and 100 per cent after 210 day of non-payment.

According to the existing Central Bank regulations, banks consider the loans as doubtful only after 180 days.

Banking analysts told Emirates Business that many banks in the UAE are already following the 90-day norm on provisioning.

The economic crisis saw the banking sector working towards improving its loan book quality. While non-performing loans rose significantly and are likely to further increase to about 6.5 per cent in 2010, provisions too have been on the rise.

According to data published by the Central Bank, loans and advances, net of provisions, of the banks reached Dh1.018 trillion at the end of February whereas deposits were at Dh958.3 billion. Banks have been quite stringent on lending and the new norms will further contribute to improving the loan book quality, said analysts.

"It is in fact good for the banking sector in this region. Banks here already have proved themselves to be stronger than their counterparts worldwide and the new norms are good for the long-term health of the sector," said an analyst.

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