Article (2): Limits Constituting Large Exposures
C 32/2013 Effective from 11/11/2013For the purpose of Central Bank reporting a large exposure is defined as those funded and unfunded exposures and unused committed lines (less provisions, cash collaterals, bank guarantees and Federal Government guarantees) to a single borrower or his group, which in total is equal to or exceeds 10 % of the bank’s capital base.
The Central Bank has set the maximum large exposure limits as shown in following table:
Table of Maximum Large Exposure Limits | ||
Borrower | Aggregate Percentage | Individual Percentage |
Federal Government | Not applicable | Not applicable |
UAE Local Governments and their non-commercial entities | 100% | No cap for local governments 25% for each non-commercial entity |
Commercial entities of Federal and Local Governments | 100% | 25% |
A single borrower or a group of related borrowers | Not applicable | 25% |
Shareholders who own 5% or more of a bank’s capital and their related entities | 50% | 20% |
Inter-bank exposures - over 1 year | Not applicable | 30% |
A bank’s subsidiaries and affiliates | 25% | 10% |
Board members | 25% | 5% |
Bank’s employees | 3% | Maximum 20 months’ salary |
A bank’s external auditors, consultants and lawyers | Not allowed | Not allowed |
Notes to the table:
- Exposure is defined as the sum of: funded, unfunded and committed lines. Unfunded exposures may be adjusted for Credit Conversion Factors (CCF) in accordance with Basel II.
- The above definition of Exposure excludes bank’s investment in marketable bonds/sukuks (that are rated not less than AA-, or equivalent, by one of the top three rating agencies) where such bonds/sukuks are held to meet Central Bank liquidity requirements, or are held in the trading book and the intention is not to hold such bonds/sukuks to maturity.
- Exposure to Federal Government includes deals transacted on behalf of the Federal Government.
- A Government Related Entity (GRE) that is profitable and can service its debt obligations from its own resources/operations, without need for any implicit or explicit government support and holds a rating of not less than BBB- (or equivalent) from one of the top three rating agencies can be treated as a single obligor in accordance with the 4th line in this table.
- Exposures to banks operating outside the UAE, irrespective of their maturity, are not allowed to exceed 30% of the bank’s capital base. The same applies to exposures of branches of foreign banks to their head offices and other branches abroad, as well as to foreign subsidiaries and affiliates of such head offices; this limit also applies to exposures of UAE incorporated banks vis-à-vis their foreign subsidiaries and affiliates.
- All banks must have strict policies in place (approved by their board of directors) to cover potential conflict of interest where loans are issued to staff members on a “stand- alone” commercial basis. Loans for business purposes should be separately classified as commercial loans and approved on an ‘arms- length’ basis.
- Banks that have exposures that are out of line with the new limits as per the table at the date on which they come into force, must, at a minimum, improve such exposures at the rate of 20% per annum, i.e. full compliance with the limits must be achieved in 5 years.
- The limits contained in this table are subject to review, in line with international regulatory development.