Implications of New Measures in UAE Banking Law

The introduction of Article 121 bis of the UAE Banking Law and Article 409(2) of the New Commercial Transactions Law has brought significant changes to the banking landscape in the UAE. These new measures require banks to obtain sufficient or adequate security for loans extended to consumers and natural clients/sole proprietorships. In this article, we will discuss the implications of these measures and provide practical advice on how banks can navigate this new regulatory environment.

Key Points from the Article

• Interpretation of Scope: There is ongoing debate among courts regarding the scope of these new measures, with some interpreting them as applying only to consumer borrowing.
• Applicability to International Banks: Questions have been raised about whether Article 409(2) applies not only to Licensed Financial Institutions (LFI’s) but also to any bank (including international banks) lending to a UAE borrower.
• Review of Current Facilities: Banks are advised to review their portfolio of lending facilities, particularly those extended to natural clients and sole proprietorships, considering what security is in place and whether it is likely to be considered sufficient or adequate.
• New Facilities: When granting new loans, banks should scrutinize the terms of each loan agreement, paying increased attention to facilities extended to consumers, considering the express terms of Article 121 bis and any official guidance in place.
• Sufficiency of Personal Guarantees: Personal guarantees are unlikely to be considered sufficient to support loans to which Article 121 bis applies, and may also be the case for corporate loans under Article 409(2) of the New Commercial Transactions Law.

Practical Implications

The new measures introduced by Article 121 bis and Article 409(2) have significant practical implications for banks operating in the UAE. To ensure compliance with these regulations, banks should:

• Review their current portfolio of lending facilities to determine whether they meet the requirements of the new measures.
• Scrutinize the terms of each loan agreement, paying particular attention to facilities extended to consumers and natural clients/sole proprietorships.
• Consider obtaining additional security or revising existing loan agreements to ensure compliance with the new regulations.

By taking these steps, banks can minimize their risk exposure and ensure that they are in compliance with the new measures introduced by Article 121 bis and Article 409(2).