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    CBUAE Issues Rules on Real Estate Exposures, Extends Relief Measures

    December 20, 2021

    The Central Bank of the UAE (CBUAE) is extending certain measures of the Targeted Economic Support Scheme (TESS) until June 30, 2022, to support the continued economic recovery during pandemic. These measures include temporary lowering of the capital conservation buffer and the capital buffer for systemically important domestic banks as well as temporary prudential relief with respect to the liquidity coverage ratio, eligible liquid assets ratio, net stable funding ratio, and advances to stable resources ratio. The program to support new lending and financing will also continue until June 30, 2022. Additionally, CBUAE signed a memorandum of understanding with the Central Bank of Iraq to enhance co-operation in banking supervision and set out an enhanced framework to supervise bank exposures to the real estate sector. The new standards cover all types of on-balance-sheet loans and investments and all off-balance-sheet exposures to the real estate sector.

    The standards on real estate exposures of banks require banks to review and improve their internal policies to enhance sound underwriting, valuation, and general risk management for their real estate exposures. They refine definitions, measurement, and supervision, facilitating the adoption of best practice in bank real estate financing and risk management. The new methodology also introduces measurement of these exposures, based on credit risk-weighted assets using the capital adequacy standards of CBUAE. Banks with higher risk-weighted real estate exposure in their portfolios will be subject to a more extensive supervisory review of their underwriting and risk management practices in this segment. The standards came into effect from December 30, 2021, starting with a one-year observation period, during which banks will be required to enhance their practices to meet the new standards. CBUAE will evaluate these standards based on a supervisory review during the observation period.

     

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    Effective Date: December 30, 2021 (Real Estate Standards)

    Keywords: Middle East and Africa, UAE, Banking, COVID-19, TESS, Regulatory Capital, Credit Risk, Liquidity Risk, Loan Repayment, Real Estate Exposures, MoU, Basel, LCR, NSFR, CBUAE

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