The new standards cover all types of loans and investments in the balance sheet

“Central”: a supervisory framework for monitoring the exposure of banks to the real estate sector

  • The Central Bank stressed that banks should review and improve their internal policies based on the new standards.

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  • Khaled Balama: "Banks will continue to play their role in financing real estate and construction, as they are essential to the state's economy."

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The Central Bank announced the issuance of a developed supervisory framework to monitor the exposure of banks operating in the country to the real estate sector.

The new standards cover all types of loans and investments on the balance sheet, as well as all exposures to the real estate sector off the balance sheet.

best practices

These standards contribute to clarifying definitions, measurement and supervision procedures, and thus will facilitate the adoption of best practices in real estate financing and risk management for banks.

Based on these comprehensive standards, banks should review and improve their internal policies, with the aim of strengthening loan-granting practices, valuation and general risk management in their exposure to the real estate sector.

The new methodology also provides a measurement of the size of these exposures, based on credit risk-weighted assets, using capital adequacy criteria approved by the Central Bank.

more comprehensive

Banks that have in their loan portfolio a higher risk-weighted risk of real estate sector exposures will be subject to more comprehensive supervision of their practices related to granting loans and managing risks in this segment.

The new standards will come into effect on December 30, 2021, starting with a one-year monitoring period during which banks will be required to strengthen their practices to comply with the new standards.

These criteria will be evaluated by the Central Bank based on the supervisory review during the monitoring period.

essential role

The Governor of the Central Bank, Khaled Muhammad Salem Balama, said, "Banks will continue to play a fundamental role in financing the real estate and construction sectors, as they are essential sectors for the UAE economy."

He added, "We at the Central Bank have developed a new risk-based methodology to enhance monitoring and supervision of banks' exposure to the real estate sector," noting that "the new standards will enhance best practices in the field of real estate finance in the country, as well as enhance the integrity of our financial system."

• The new standards come into effect on December 30, 2021, starting with a one-year monitoring period.

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