The central bank announced yesterday a new mechanism for calculating and reporting non-performing loans in the banking sector, reflecting its real situation away from the overstatement of banks' interest on loans that have not been collected for 90 days to total non-performing loans.

The Central Bank said in a statement yesterday that it had, in consultation with the International Fund, improved its standards in reporting the levels of non-performing loans in the UAE banking system in order to ensure that the methodology conforms to international best practice.

He pointed out that the previous Central Bank methodology shows that the non-performing loans in the UAE banking system are excessively high compared to other countries due to the inclusion of outstanding interest.

According to the latest data issued by the Central Bank, banks have adequate coverage of bad loans to ensure the financial safety of the banking sector in the country and protect against any fluctuations, indicating that the funds that banks earn as a provision for coverage exceeds the non-performing loans in the banking sector, amounting to 124 billion dirhams allocations against 121 billion (AED) at the end of the first quarter of this year.

Central bank regulations require suspension of interest on loans that are overdue or 90 days in arrears. The outstanding interest can not be credited to profit and loss accounts, and therefore the outstanding interest is not considered part of the non-performing loans.

According to the new reporting standard, the ratio of non-performing loans to the UAE banking system at the end of 2018 was 5.6% (instead of 7.1% under the previous reporting methodology).

The central bank system sets five levels of loan classification: regular loans, supervised loans, substandard loans, doubtful loans, as well as non-performing loans, which are non-performing loans or loss loans.

According to the system, loans classified as "ordinary" are considered to be of normal bank risk, while the information available to the Bank indicates that their payment is certain, as agreed, while loans classified as "monitored" are accounts with some weaknesses As for the solvency of the borrower, more attention is required, although it does not require a dedicated configuration.

Loans below the normal level are loans that may lead to losses, as factors may impede the repayment process. This category usually includes loans and advances where the original loan is delayed for more than 90 days, instead of 180 days. Banks in such a case must set up a custom rate of 25% of the entire loan balance.

Loans classified as "doubtful" are loans that appear to be fully repayable, based on available information, and often result in the loss of part of these loans (when the financial position of the client is inadequate and the collateral is insufficient). Customized composition of 50% of the entire loan balance.

Loans that are classified as "non-productive" or "impaired" are considered to be a loss, in which the Bank makes all the means to collect them and received little or no collection of them, in which case a provision of 100% .

According to the Central Bank statement, this change in methodology will be reflected in publications to be issued later by the Central Bank and in communication with stakeholders as of the third quarter of 2019.

In the first five months of this year, the banks operating in the UAE provided loans and loans to the various economic sectors at a total value of 25 billion dirhams. The total credit in the banking sector rose by 1 trillion and 681 billion dirhams by the end of last year, compared with a trillion and 676 billion at the end of last year.

Business and industrial finance increased from AED 792.6 billion at the end of December to AED 806.8 billion at the end of May, an increase of AED 14.2 billion or 1.8%. Government lending increased to AED 204.8 billion at the end of May compared to AED 191.5 billion at the end of December 2018, an increase of AED 13.3 billion. 7% growth.

Banks' investments in securities representing debt to others (debt securities) increased from AED 210.9 billion to AED 237.1 billion, an increase of KD 377.8 billion, an increase of AED 37.5 billion or 11.3%. AED 26.2 billion with a growth rate of 12.4%