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29 March 2024

UAE to issue new mortgage rules

Published
By Staff

The Central Bank of UAE intends issuing new rules to regulate mortgage lending by banks operating in the country within an overall banking reform process that saw the enforcement of a new personal lending law this month, according to a news report today.

The central bank discussed the new rules with banks at a meeting on Wednesday but gave no details of such rules, Arabic daily Al Khaleej said.

“The talks covered a timetable for the issuance of the new mortgage lending law, which the central bank is preparing,” the daily said, quoting a “responsible” source at a national bank.

“During the meeting, the central bank said a study on the new law has almost been completed and the law will soon be issued.”

Mortgage credit extended by banks in the UAE stood at Dh163.2b at the end of 2010. Central bank data shows mortgage lending by banks in the country increased by just 11 and 15 per cent in 2009 and 2010, respectively, while it surged 100 and 123 per cent in 2007 and 2008, respectively, during the oil-fuelled construction boom.

Financial analysts have warned that many banks could be exposed to mortgage loan default following the sharp downturn in the real estate sector in the aftermath of the global crisis.

The central bank has been locked in a drive to bolster the country’s financial sector following the 2008 global fiscal distress and regional debt default crises that jolted many local banks. Earlier this month, it enforced new rules on retail lending, capping personal loans at 20 times a borrower’s monthly salary and stipulating that the loan must be repaid within 48 months.

The regulations cover all retail loans including personal, car, housing loans and credit credits. They are intended to control lending activity and excessive charges by banks following public complaints about a surge in bank fees.
Personal loans in the UAE, which has the largest banking sector in the Arab region, surged by 35 per cent during 2006-2008 before sharply slowing down over the past two years following the 2008 crisis and default problems in the region.

From around Dh109b at the end of 2006, personal loans jumped by nearly 39 per cent to Dh148b at the end of 2007 and by about 54 per cent to Dh228b at the end of 2008.

Growth plunged to only around 3.9 per cent through 2009, when personal loans ended the year at Dh237b.

In 2010, personal loan growth slowed down further to nearly 3.7 per cent as they stood at around Dh246 billion at the end of the year.