Dubai: The UAE Central Bank has removed waivers given to foreign banks allowing them to use their group’s capital reserves to calculate lending to the government and state-owned entities, sources aware of the matter told Reuters.
The change, related to 2012 legislation to counter dangers to the country’s banking system from lenders accumulating large exposures to single borrowers, means foreign banks can only use the reserves of their locally-registered units to calculate lending limits.
Large international banks should be unaffected by the move, as they register the loans made in the UAE in central processing centres outside the country.
However, the sources said many regional Gulf and Asian banks, which traditionally booked UAE business within local units and predominantly lend to government entities and large companies, would be significantly impacted.
One, at a bank affected by the move, said his organisation had stopped nearly all lending to clients as it evaluated the move’s implications.
The UAE Central Bank did not respond to a request for comment.
According to the circular outlining the ruling, the exposure to the government and government-linked companies of branches of foreign banks in the UAE must not exceed 30 per cent of the local capital base.
Possible options for affected banks include switching the booking of new business to their home jurisdiction or a third country, or opening an office in the emirate’s financial free zone, the Dubai International Financial Centre, the first source added.
However, those banks with branches — around 26 according to central bank data — would not be able to switch their headquarters to the free zone as they are administered by different regulators.
Some banks might not be able to use their home jurisdictions either due to cumbersome or prohibitive regulations about booking foreign assets.
