Non-Commercial PSEs

11.Non-Commercial PSEs include administrative bodies responsible to the UAE Federal Government, to the Emirates Governments, or to local authorities and other non-commercial undertakings owned by the Federal governments, Emirates Governments or local authorities. These non-commercial PSEs do not have specific revenue- raising powers or specific institutional arrangements the effect of which is to reduce their risks of default. The risk of non-commercial PSE exposures is not equivalent to the risk of sovereign exposures and hence the treatment of claims on sovereigns cannot be applied to non-commercial PSE. However, in exceptional cases, a Non-Commercial PSE may receive the same treatment as its sovereign, if the entity has proven formal arrangements in place to the effect that there is no distinction between the risk of the entity and the risk of its sovereign. The Central Bank's GRE List would reflect this accordingly.

12.If the UAE borrower satisfies the criteria in paragraph 13, the risk weight shall be the same as that for claims on banks. However, the preferential treatment for short-term claims on banks may not be applied. In particular, unrated non-commercial PSE qualify for 50% risk weight. The criteria are based on the principle that non-commercial PSEs qualify for lower risk weights because they have significantly lower risk than a commercial company does. In addition, banks are specifically required to ensure compliance with other aspects of the banking regulations when lending to these entities, for example, but not limited to, the Central Bank large exposure regulations.

13.The alternative criteria listed are to be applied in determining whether an entity qualifies for treatment as a non-commercial PSE. The Central Bank provides a list (so-called GRE List) to all the banks in the UAE which includes non-commercial PSEs.

1. i.Direct government (Federal or Emirate) ownership >50% directly or through a qualifying PSE that itself is majority owned by government.
2. ii.An entity whose complete activities are functions of a government.
3. iii.Its services are of public benefit including when services are sold directly to the public (e.g. electricity and water). The service provided should be of substantial public benefit and the entity should have a monopolistic nature and there should be a significant likelihood that the government would not let the entity go bankrupt.
4. iv.Not listed on any stock exchange.
5. v.Provides internal services to parent or sister companies only, and the parent company is itself a non-commercial PSE.
6. vi.The function of the company is of a non-commercial nature and does not operate in a competitive market.
7. vii.Does not operate overseas.

14.In the case of a UAE sovereign guarantee given to a non-commercial PSE, with the Central Bank approval, the guarantee may be treated as eligible credit risk mitigation (CRM) to reduce the exposure provided the bank ensures compliance with the entire minimum regulatory requirements and operational requirements stated in the credit risk standard.

Government Related Entities (GRE)

15.These are commercial undertakings that are fully owned or more than 50% in ownership by Federal governments, or by Emirates governments. As these entities function as a corporate in the competitive markets even though the government is the major shareholder, Central Bank requires such exposures to be classified under GRE and get the same treatment of claims on corporate with the appropriate risk weights based on the credit rating of the entity.

16.All banks must comply with the latest version of the GRE list for classification and risk weighting of entities. Banks that have information that would lead to the addition (or removal) of an entity to (or from) the GRE list must submit such information to the Central Bank. All banks must comply with the GRE list unless any addition or removal of entities is reflected in the GRE list.

17.Banks Internal audit/compliance department should perform regular reviews to ensure the PSE and GRE classification complies with the Central Bank GRE list.