UAE banking lobby turns a super-regulator

From an almost defunct bureaucratic body to virtually a super-regulator — that is how the UAE Banks Federation has transformed itself ever since Abdul Aziz Al Ghurair took charge of the organisation.

As Emirates Banks Association, the name by which the country’s bankers’ body was known before it adopted the new name, its role in the conduct of the sector was indeed nondescript.

It may not be entirely true to describe the association’s past as inward looking and self-obsessed, although for most part it remained dormant. But with Al Ghurair at the helm, it has been a different story.

Al Ghurair is no stranger to turnaround strategies. As a young CEO what he did at the once ailing and highly bureaucratic Bank of Oman to create a dynamic institution like the Mashreqbank is now part of the region’s banking history.

For many years, Mashreq had the top slot as the fastest growing bank in the country before it conceded that position to more aggressive new players.

The CEO has and acquired new skills, particularly in view of his role as Speaker of the Federal National Council, where he gained invaluable insight into the legislative processes. These strengths have obviously contributed to the turnaround of Emirates Banks Association.

The UAE Banks Federation makes no bones about its growing clout with the country’s banking regulators. In fact, the body may be credited with a few critical interventions in the affairs of the sector and is today considered the most decisive force that sets the regulatory agenda for the sector. Whether it is the introduction of new banking regulations or the determination of new prudential norms, the Federation’s stamp is visible in all major decisions.

The Federation firmly put its foot down when the central bank proposed a 50 per cent cap on the loan-to-value norms for property mortgages late last year, attributed to a perceived fear that speculative tendencies were beginning to reappear in the country’s property markets.

The tough posturing by the banks forced the central bank to suspend implementation of the guideline and initiate further consultations on the issue. Ultimately, the central bank had to toe the line proposed by the banks, which allowed up to 80 per cent of the value for UAE nationals and 75 per cent for expatriates for the purchase of the first house.

Loans for the second homes were set at 65 and 60 per cent respectively.

The Federation has now won reprieve on another contentious issue where some of the major banks, such as NBAD, Emirates NBD and Dubai Islamic Bank were in default in limiting exposure to government-related entities. Under the original central bank policy, such exposures were to be capped at 100 per cent of a bank’s capital, but all the banks involved had exposures significantly exceeding such limits, ran up during the no-holds-barred lending spree that characterized the real estate boom.

The original deadline for compliance expired in September last. Compliance would have disallowed further lending to entities such as the Investment Corporation of Dubai as well as Mubadala in Abu Dhabi, both of which continue to invest in economic diversification and stability projects.

The Federation has now proposed a grace period of five years to bring down the exposure to the desired levels. It has also recommended exclusion of marketable bonds and sukuks from the proposal.

Also recommended is a ‘Means and Purpose Test’ to determine whether the large exposure regulation applies to an entity. The Federation had assigned a special committee, comprising the CEOs of NBAD, Adib, Emirates NBD, Dubai Islamic Bank and National Bank of Fujairah to study the issue.

Going by the clout that the powerful new banking lobby enjoys with the central bank and given the way in which the regulator has responded to various proposals of the Federation in the past, it is most unlikely that the new proposals will fail to receive approval.

That makes the UAE Banks Federation a super-regulator.

— The writer is a journalist based in the UAE