Central Bank of UAE - New Regulations on Loan Classification and Provisioning Immiment

 

AlKhaleej Newspaper (Dubai) reports on an interview with Saif Hadaf AlShamsi, Chief Executive Director of the CB UAE's Treasury Department that the CBB has prepared the final draft of regulations on loan classification and provisioning and submitted these to the Board for approval.  Approval is anticipated very shortly.   The regulations will apply to banks, finance companies and investment firms.

The new regulations contain the following:

1. A loan will automatically become substandard when payment is delayed 90 days from due date.  The current standard is 180.  90 days is pretty much the global norm.
2. Mandate a general reserve of 1.25% of total assets (a provision for the unrated portion of banks' portfolios).  (I'm not sure of the exact translation here of "الجانب غير المصنف في محافظ".  I believe this means for risks not recognized in specific provisions.  If anyone has a better translation or explanation, please post a comment).
3. Require that all borrowers (individuals, public sector, and private sector) be classified into one of five categories: Performing (Normal) Loans, Watch (Under Review) Loans, Substandard Loans, Doubtful Loans, and Loss.  Covered firms will have to have detailed procedures for classification and monitoring of their loans.
4. Each of the five categories will also have its own "days overdue" rule as well as required (presumably minimum) provisions.
5. Implementation will be immediate upon Board approval and financial statements will have to be prepared accordingly.   He noted that last October the CBB advised banks and other covered firms to prepare.
6. Also during October, firms were advised to transfer any interest accrued but not collected to a special account "Suspended Interest".

Finally on another topic he noted that UAE banks had excess liquidity with the CB UAE.  And that not a single bank has taken any "emergency" liquidity funding.  You'll recall that after DW' November announcement of its intention to reschedule certain of its subsidiaries' debts, the CB UAE had said it would provide liquidity if required. 

The revised standards represents a big, if somewhat belated, step forward for the UAE.  My hope is that this information will released in the aggregate by the CBB  (system wide) and by individual banks about their own portfolios in their financials.