* Central bank chief says no rule changes without
* New rules to be announced after 6-9 months
* Follows strong protests by commercial banks
* Three regulatory climb-downs in past year
* Raises questions about regulation as UAE recovers
(Adds analysis, context)
By Andrew Torchia
DUBAI, Jan 22 The United Arab Emirates central
bank has confirmed it will not impose limits on mortgage loans
without consulting commercial banks, after an attempt to
introduce such rules triggered fierce protests from the banks.
It is the third time in the past year that the central bank
has introduced regulations designed to reduce risk in the
banking sector, only to back off from enforcing them after
meeting opposition in the business community.
The incident raises questions over authorities' regulation
of banks as the UAE recovers from Dubai's corporate debt crisis
of 2008-2010 and seeks to avoid the boom-and-bust cycle that
plagued its real estate market in the past decade.
A circular sent to commercial banks by the central bank late
last month, and seen by Reuters, said mortgage loans for foreign
individuals should not exceed 50 percent of property value for a
first purchase of a home, and 40 percent for subsequent homes.
Caps for UAE citizens were set at 70 percent and 60 percent.
But UAE state news agency WAM on Tuesday quoted central bank
governor Sultan Nasser al-Suweidi as saying the circular would
not be enforced and was merely intended to help banks prepare
for eventual rule changes which would reflect their feedback.
"There is no such system regulating real estate financing
for individuals. This is now a proposed system to be issued
after consultation with the banks," WAM quoted Suweidi as
telling Abu Dhabi television.
The central bank intends to introduce regulations covering
the mortgage market but only after six to nine months, and there
are no current discussions on possible percentages for mortgage
caps, he added.
The central bank's climb-down was first reported in comments
attributed to Suweidi by Al Ittihad newspaper on Monday.
Last month's central bank circular was met by a storm of
protest, with bankers complaining they were not consulted and
that the rules could hurt banks and slow the UAE real estate
market's recovery from its 2008-2010 crash.
The Emirates Bank Association, the industry's lobbying group,
met last week and agreed to submit formal proposals to the
central bank to water down its rules.
The controversy recalled two previous climb-downs by the
central bank. It announced last April that from Sept. 30 last
year, banks would have to limit their exposure to state-linked
entities. Some big banks were above the limits when the deadline
passed, and in December, the central bank announced it was
suspending the rules while it consulted banks.
Similarly, requirements for banks to hold a certain
proportion of their assets in liquid instruments were announced
last year and then suspended.
The central bank does not publicly discuss its decisions and
it is not clear why it has backed down from enforcing
regulation. Suweidi, who began his career in Abu Dhabi's
sovereign wealth fund, has been in his position since 1991; last
November, top Abu Dhabi banker Khalifa Mohammed al-Kindi became
the central bank's new chairman.
The UAE and particularly Dubai are financial centres for the
entire Gulf, so commercial bankers have considerable influence.
Also, there is likely to be some debate within the
government over how much regulation should be allowed to slow
economic growth. Dubai depends more on its banking sector and
real estate market than Abu Dhabi, which has huge oil reserves.
A UAE commercial banker, who declined to be named because of
the sensitivity of his remarks, said the central bank was now
trying to save face after causing confusion among bankers and
their customers with "unilateral and arbitrary directives".
Mortgage caps are the right way to keep speculators out of
the UAE's property market but the original circular was too
harsh, said Fadi Moussalli, regional director at global real
estate services firm Jones Lang LaSalle.
"The law sends the right signal to the market as it aims at
limiting the brutal ups and downs of prices, but we feel that
the first draft was too quick, too simple and too harsh."
(With additional reporting by Stanley Carvalho and Mirna
Sleiman; Editing by Hugh Lawson)