The Central Bank of Egypt (CBE) said yesterday that it has finalized a draft new system that will monitor banks' exposure to the real estate sector to ensure financial stability and provide more flexibility in financing the property. In addition to proposed measures that will help avoid excessive exposure to the real estate sector, banks are encouraged to retain a variety of assets.
The central bank called on banks to provide feedback on the proposed framework through the Emirates Banks Union by 31 October.
In detail, the Central Bank confirmed in a statement yesterday that it has issued to banks operating in the country a draft regulatory framework proposed for banks' exposure to the real estate sector, for consultation. This framework has been prepared in line with the Central Bank's ongoing efforts to develop its regulatory systems, in conjunction with a comprehensive assessment of the situation, and third party endorsement by external international experts.
The proposed regulatory framework aims mainly at enhancing financial stability by reformulating regulatory measures aimed at banks' exposure to the real estate sector. These improved measures are also expected to allow more flexibility in lending to the real estate sector, while ensuring that banks with high exposure to the real estate sector exceed the prescribed limit will be subject to additional regulatory requirements.
In addition, by imposing an irreversible backstop, the proposed measures would help avoid excessive exposure to the real estate sector and encourage banks to hold diverse assets.
The Central Bank will endeavor to complement the proposed framework with its risk-based supervision methodology to ensure consistent and consistent application of regulatory measures and appropriate risk management standards across all banking institutions. The bank called on banks to provide feedback on the proposed framework through the Emirates Banks Union by 31 October.
Over the past two years, residential and commercial property prices have seen a mixed decline amid official demands to adjust the pace of projects to balance supply and demand and enhance the sector's attractiveness.
Finally, the Chairman of the UAE Banks Union, Abdul Aziz Al Ghurair, told reporters in Abu Dhabi that the Central Bank's proposal on real estate changes the allowed rate of lending from 20% of deposits to 20% of risk-weighted assets, and can rise up to 30% under certain conditions. He stressed that the Union is in the process of submitting a memorandum of reply to the Central Bank's proposals contained in the draft regulatory framework.
For his part, said the expert in real estate finance, Muhannad Awni, that «some of the banks operating in the market have high exposures on the property, contrary to the system of credit concentrations established by the Central Bank not to concentrate finance in one sector without the rest of the sectors, because of the high risks associated with The weak financing of various sectors, especially in small banks, makes them lenient in lending to real estate, which increases the default rates due to unfavorable market conditions.
AED 269.4 billion in real estate financing
According to the latest data issued by the Central Bank, real estate financing rose by the end of June to the highest level in the past five years, reaching AED 269.4 billion at the end of the first half of this year, compared to AED 243.6 billion at the end of December, an increase of AED 25.8 billion. Growth of 10.6%.
This is the highest percentage in the last five years, with real estate financing during the same period of 2018 increasing by 7 billion dirhams, or 3%, from AED 229.4 billion at the end of December 2017 to AED 236 billion at the end of June 2018.
- The regulatory framework aims to reformulate
Control measures targeting
Banks exposure to real estate.
- Banks provide the Central Bank
Its observations on the proposed framework