Under previous reporting methodology, non-performing loans were overstated
The Central Bank of the UAE plans to enhance its reporting of non-performing loans (NPL) in an effort to align with international best practices, it was announced on Wednesday.
The improved reporting is being done in coordination with the International Monetary Fund (IMF).
Under its previous reporting methodology, the UAE’s banking sector’s NPL ratio was overstated when taken in comparison to other jurisdictions because of the inclusion of interest in suspense.
Under the new reporting standard, the NPL ratio of the UAE banking system for the year-end 2018 stood at 5.6 percent, compared to 7.1 percent under the previous methodology.
As part of the enhanced reporting, the central bank is providing new figures calculating the NPL ratio of the last five years using the new methodology.
Additionally, to provide increased transparency, the Central Bank is also publishing a net NPL ratio which excludes specific provisions held by banks against NPLs.
For the UAE’s banking system, this ratio stood at 1.8 percent at the year-end 2018.
The net NPL ratio provides a comparison with other banking sector, considering their various provisions and write-off policies.
All the changes will be reflected in future publications from the central bank and communicated with stakeholders as of Q3 2019.