As major banks in the West are hit with multi-million fines for breaching increasingly more stringent regulations, the head of the main United Arab Emirates banking industry group came up with a somewhat surprising request: please fine us, too. Abdulaziz Al Ghurair, chairman of the U.A.E. Banks Federation, said recently that chief executives of the 51 banks that make up the UBF, agreed to ask the country’s central bank to impose fines on those members who fail to comply with recently-introduced regulation that caps mortgage lending. The current legislation doesn't include any penalties. “We will ask: please fine the banks,” said Mr. Al Ghurair. “That’s how transparent and tough we are,” he said. The federation will also ask the central bank to block banks from conducting relevant activities and to suspend employees in case of violation of the new rules. The banking federation is at the same time introducing its own code of conduct for the domestic banking industry. It covers aspects such as risk controls, treatment of customers, market conduct and regulation. Banks which are found neglecting the code will be “named and shamed” online, Mr. Al Ghurair said. The two initiatives are of course aimed at improving the image of the banking industry in the U.A.E. which – as elsewhere in the world – has taken a reputational hit in recent years due to the financial crisis and a regional property bubble burst. Still, it is probably in the industry’s self-interest to avoid some of the mistakes of the boom years, when banks helped create a debt-fueled property bubble after which they were forced to absorb hefty losses on bad loans and even accept state support to weather the crisis. “Today we have set the speed limit, today everybody knows this is what you need and this is what you cannot do,” said Mr. Al Ghurair. He said the code was introduced now because the country is enjoying an economic rebound following the financial crisis years. Ratings agency Moody’s recently upgraded the U.A.E. banks rating to stable from negative on expectations that the economic and property rebound would diminish the level of bad loans. Indeed, house prices are on the rise again – some reports say roughly 40% year-on-year, which inevitably has sparked concerns that Dubai is headed towards bubble territory again. In order to contain those real estate excesses, regulators have taken action including raising registration fees on house sales. But Mr. Al Ghurair is already calling for more mechanisms to be put in place. “We will encourage a frequent review of this LTV (loan to value ratio) by raising it or lowering depending on where the (real estate) sector is going,” he said. Moreover, the federation would like to see regulation that would put a stop to flipping, the quick re-sale of a property for a profit, by forcing owners to hold on to their property for a period of up two years. Does that mean Mr. Al Ghurair believes Dubai’s property market is again overheating? “Not yet,” he said.
