New mortgage and credit rules likely

Dubai The UAE Central Bank is working on a plan to regulate the credit and mortgage markets more effectively, Governor Sultan Bin Nasser Al Suwaidi said.

Speaking at the ACT Middle East Annual Conference of treasury professionals in Dubai yesterday, Al Suwaidi said the liquidity situation in the country is fast improving, although loan growth this year will remain in single digits.

Loans disbursed by banks during 2009 grew by four per cent. The Central Bank governor said the growth will remain around the same level this year.

At the height of the liquidity boom between 2004 and 2008, the country experienced average credit expansion in excess of 30 per cent. This fell to single-digits during the global liquidity crisis. "We need to control this kind of fluctuation in the credit markets," Al Suwaidi said.

He added that the Central Bank is looking at reforming the mortgage business in view of the severe crunch following the financial crisis.

High costs

"There has been a significant slowdown in the mortgage sector and the cost of mortgage financing is excessively high.

"This needs to be rectified in the interest of investors and the economy at large," Al Suwaidi said.

Commenting on banking sector liquidity, the Central Bank governor said there has been significant improvement in deposits and there has been an increase in the flow of external deposits to the banking system.

The UAE will continue guaranteeing bank deposits until 2011 when the three year guarantee will come to a close, Al Suwaidi said.

He said the UAE banking sector didn't shrink during the financial crisis but has grown at a slower rate.

"As of June 30, total assets and liabilities were Dh1.59 trillion, total deposits at Dh985 billion, loans and advances at Dh1.096 trillion," he said.

As a long-term solution to iron out the liquidity fluctuations in the market, he recommended the government issue debts of various maturities.

Commenting on the banking sector consolidation, Al Suwaidi said GCC-wide consolidation faces a number of legal hurdles but within the UAE it has been proved that it is not a difficult task.

On economic recovery Al Suwaidi said the UAE is recovering fast and GDP growth will be three to four per cent this year.

Is the current state of mortgage regulations discouraging you from buying property? What should be done to help residents in buying property?