CBUAE has issued a regulation that introduces the licensing and supervision framework for low-risk, specialized banks. The regulation includes provisions related to licensing, permitted activities, minimum capital and liquidity requirements, credit exposure restrictions, credit reports, regulatory reporting, and certain specialized Islamic banks. The regulation sets a minimum paid-up capital requirement of AED 300 million that specialized banks must maintain and a risk-based capital adequacy requirement that they should continuously adhere to. It also sets the total consolidated assets of specialized banks, which should not exceed AED 25 billion. The regulation was published in the Official Gazette on March 31, 2021 and came into effect on April 30, 2021.
Specialized banks are licensed under the new regulation and are allowed to practice different financial activities to serve the local community, such as account opening, card issuance, and retail and wholesale lending. Specialized banks can be established either as a conventional specialized bank without Islamic windows or as an Islamic specialized bank. Specialized banks are permitted to provide their services to UAE nationals and UAE residents only. Other key provisions covered in the regulation include the following:
- Any Person intending to operate a specialized bank must first obtain a license from CBUAE. The license shall be granted for an initial period of three years and shall be renewable for same periods unless otherwise required by CBUAE. A specialized bank must apply to CBUAE for license renewal no later than two months before the expiry date of the existing license. A specialized bank wishing to cease or suspend any of its licensed activities must apply to CBUAE at least six months in advance providing the reasons for such a cessation or suspension.
- The minimum required paid-up capital for a specialized bank is set out in the minimum capital for Banks Regulation. UAE national ownership of a specialized bank must comprise at least 60% of total paid-up capital. Specialized banks must maintain aggregate capital funds of at least 12.5% of its total assets at all times, and at least 17% during its first three years of operation. A specialized bank must obtain approval from CBUAE for any proposed distribution of profits or reduction in capital, including dividend distributions.
- A specialized bank’s credit exposure to a single borrower or group of related entities is considered as a large credit exposure, where its value is equal to or exceeds 5% of the aggregate capital funds of specialized bank. The aggregate amount of large credit exposures must not exceed 100% of the aggregate capital funds of specialized bank.
- A specialized bank must provide credit information of borrowers to the Al Etihad Credit Bureau and any future credit information agencies established for this purpose in UAE on at least a monthly basis unless otherwise required by the law or CBUAE. A specialized bank must request credit information of borrowers from the Al Etihad Credit Bureau and any future credit information agencies established for this purpose in UAE before extending credit to an individual borrower or a company.
- The financial year of the specialized bank must commence on January 01 and end on December 31 (except in the year of formation, which commences on the date of registration of the specialized bank in the commercial registry and ends on December 31 of the next year, provided it does not exceed eighteen months). Specialized banks must regularly report to CBUAE on their outsourcing arrangements in the format and frequency prescribed by CBUAE.
Effective Date: April 30, 2021
Keywords: Middle East and Africa, UAE, Banking, Specialized Banks, Regulatory Capital, Licensing Framework, Large Exposures, Reporting, Islamic Banking, CBUAE
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