On December 20, the Central Bank of the United Arab Emirates to improve the oversight on the lending’s across the real estate sector of the country announced the rollout of the new “enhanced framework” that consisted of refined definitions, supervision, and measurement, along with assistance in the adopting the best practice in bank real estate financing and risk management.
Key Highlights of the “Enhanced Framework”
- The new standards will cover all types of on-balance-sheet loans and investments and off-balance-sheet exposure to the real estate sector.
- Further, banks will be required to improve the internal policies for the enhancement of valuation and general risk management and sound underwriting for their estate exposures.
- The Standards will go into effect on December 30, 2021, after a one-year period of observation during which banks will be asked to improve their processes in order to comply with the new Standards.
- During the observation period, the CBUAE will assess these standards based on a supervisory evaluation.
Furthermore, in the new framework, CBUAE's capital adequacy rules are used to measure these exposures, which are based on credit risk-weighted assets. In this segment, banks with larger risk-weighted real estate exposure in their portfolios will face a more thorough supervisory scrutiny of their underwriting and risk management methods.