The Central Bank of the UAE (CBUAE) has brought out an improved framework to oversee the exposure of the bank to the real estate sector.
The new standards by CBUAE cover all types of on-balance-sheet loans and investments, and all off-balance-sheet exposures to the real estate sector. It will restructure the definitions, measurement and supervision, enabling the adoption of best practices in bank real estate financing and risk management.
The comprehensive standards require banks to review and improve their internal policies to improve sound underwriting, valuation and general risk management for their real estate exposures.
HE Khaled Mohamed Balama Governor – CBUAE
“Banks will continue to play a crucial role in financing real estate and construction, which are vital sectors of the UAE economy. The CBUAE has developed a novel risk-based methodology to enhance monitoring and supervision of bank real estate exposures. These new Standards will enhance best practice in real estate financing in the UAE, and facilitate the safety and soundness of our financial system.”
Further, the new standards have introduced the measurement of such exposures, based on credit risk-weighted assets using the CBUAE’s capital adequacy standards. Banks with higher risk-weighted real estate exposure in their portfolios will be subject to a more extensive supervisory review of their underwriting and risk management practices in this segment.
The framework will come into effect from 30th December 2021, starting with a one-year observation period, during which banks will be required to improve their practices to meet the new standards. The CBUAE will evaluate these standards based on a supervisory review during the observation period.
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