01 Oct 2012
(MENAFN) A deadline for banks working in the UAE to limit lending to the government has passed, and yet the central bank hasn’t given a clear indication of whether it would enforce the new rules or give banks more time to comply, Reuters reported, citing bankers.
The central bank in April has circulated new rules to be applied after September 30 deadline, stating that any bank’s exposure to the governments of the seven-member UAE federation and related entities is capped at 100 percent of its capital base.
The new law was designed to prevent a “deja vu” of Dubai’s corporate debt crisis in 2009, as the real estate market crashed. The crisis was worsened by local banks’ excessive exposure to government-related entities (GREs).
Many bankers expected a six-month extension is likely, and no formal sanctions will be levied against lenders that missed the September 30 deadline, given the lack of clarity in the situation.
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