Central Bank approves new mortgage cap

But CB warns banks against over-lending and delaying debt certificates

The UAE Central Bank has approved new caps on mortgage credit proposed by the country’s banks but warned them against providing excessive loans to individuals to ensure safety of the banking sector in the second largest Arab economy.

The Central Bank endorsed the new caps at three-hour talks with representatives of the country’s 23 national banks and 28 foreign units in Abu Dhabi on Wednesday, the Sharjah-based Arabic language daily Alkhaleej said.

The paper quoted what it described as a senior banking source as saying it was a “heated” meeting, during which some banks traded accusations and the Central Bank issued warnings against over-lending and a delay in issuing debt clearance certificates to clients seeking to switch to other banks.

At the Central Bank’s request, the Emirates Bankers Federation (EBF) submitted proposals on new mortgage caps last month, setting the maximum real estate loan to an Emirati individual at 80 per cent for the first property purchased and 65 per cent for second and subsequent properties.

For an expatriate individual, it suggested 75 per cent for the first property purchased and 60 per cent for the remaining properties.

“During the talks yesterday, the Central Bank approved the new mortgage caps which it believes will serve the public interest...the Central Bank said it was working on the new mortgage cap law and it would issue it soon after it is circulated to all banks operating in the country,” Alklhaleej quoted the source as saying.

“The Central Bank also strongly criticized some banks for failing to issue debt clearance certificates to clients wishing to move to another bank...it rejected any proposal that will delay the issuance of such certificates and asked banks to strictly comply with rules to issue these certificates in a short period of time.”

The source said the Central Bank also warned banks against “flooding” Emiratis with loans that exceed their financial resources and stretch as long as 300 months. “The Central Bank told banks this is unacceptable and warned it would take stringent measures against banks violating those rules.”

The paper said the meeting was attended by Central Bank governor Sultan bin Nassir Al Suwaidi and senior representatives of the 51 banks.

Unlike Saudi Arabia, the UAE has no mortgage law but has spoken of plans to issue such a legislation to prevent a US-style Subprime crisis caused by a rush by banks to provide mortgage loans.

The UAE has the largest banking system in the Middle East, with the combined assets of the 51 banks standing at nearly Dh1,792 billion at the end of 2012.


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