The Central Bank considers that the granting of credit is, generally, the core area of banking business and, therefore, the board of directors or a similar designated body and the management of banks operating in the UAE are responsible for their bank's credit policy.

Consequently, the Central Bank directs banks to formulate general credit policy instructions aimed at ensuring a prudent lending structure. Each bank's board of directors, or a similar designated body, has to approve and to implement these instructions in a way that allows for proper monitoring of all exposures.

Moreover, the Central Bank requires that a proper credit evaluation with relevant documentation will be undertaken prior to granting any credit facility.

With regard to the specific risk arising from exposures to individual countries, banks are requested to apply an extremely prudent policy when fixing country limits. The Central Bank recommends thatbanks should refer to internationally renowned credit rating agencies.

The complete loss of a large exposure may represent a considerable burden on any lending bank's capital base. The Central Bank, therefore, has stipulated that large exposures may only be granted on the responsibility of the entire board of directors of the bank, necessitating a unanimous resolution on the part of all of its members or of the members of a similar designated body.

The resolution may be passed at a meeting or in writing on a circulation basis, provided that adoption is made on unanimous acceptance.

Any such resolution has to be passed prior to the lending and a copy of it must be placed in the customer's file. Where a bank has incurred a large exposure without the required prior resolution of all members, this does not impair the legal effectiveness of the transaction. However, the Central Bank reserves the right to take appropriate action in accordance with Union Law No. (10) of 1980 and related regulations of the Central Bank based thereon.

Any existing exposure, becoming a large exposure by an increase of credit facilities, also requires a unanimous resolution of all members. In the event that an existing exposure becomes a large exposure through a reduction of the capital base, the Central Bank directs that the board of directors of the bank deliberates thereon. The board of directors must appropriately document its awareness and subsequent decisions concerning remedial action.

Under very special circumstances only, banks may deviate from the general principle of a unanimous resolution. Any such exemption must be documented properly. The Central Bank, in the course of its examinations, will verify each such case.

A bank shall only incur an exposure to a member of its board of directors, or of a similar designated body, on the basis of a unanimous resolution on the part of all members, except the member concerned, provided that the bank's general credit policy instructions have been followed. The resolution has to be passed prior to the lending and a copy of it must be placed on the member's file. In order to avoid any conflict of interest banks are requested to be very prudent when incurring exposures to members of their board of directors, or of a similar designated body.

A proper assessment of a borrower's credit-worthiness serves to protect both the bank and its depositors and creditors.

It should be beyond question that lending business is only conducted with the necessary prudence customary in banking; that is, before granting a loan, the bank must be convinced that the prospective borrower is credit-worthy.

The Central Bank, therefore, advises all banks operating in the U.A.E. not only to examine the credit-worthiness of their customers in detail before granting any loan, but also to ensure a proper follow-up regarding the financial situation of each customer throughout the whole business relationship.

Banks have to make sure that they can detect any deterioration in their customers' financial situation with minimal delay. For this purpose, they are expected to review their loan books on a regular basis and ask their customers for up-dated information.

Banks must insist that major borrowers disclose reliable evidence of their financial situation by submitting financial statements, other relevant information, and signed declarations of their independence from the bank, its principal shareholders, directors and officers.

Regarding corporate customers required to keep accounts, banks should obtain regular audited annual financial statements and ensure that they are kept informed of any major changes in the customer's business environment or other variables of such customers occurring throughout the year.

In the case of loans to group enterprises, banks must obtain the individual financial statements of the borrowing group enterprise as well as the consolidated statements of the group itself.

In cases where the head office of a foreign bank or a fellow branch abroad decides on loans to be granted by its UAE branch to borrowers with activities in the UAE, the Central Bank insists that full documentation be made available to the bank's UAE branch.

With regard to borrowers who are not obliged to prepare financial statements, banks must obtain statements of assets and liabilities, land register excerpts, property tax and/or income tax assessment notices and confirmation of salary, where applicable. The question as to what documents the credit-worthiness assessment is to be based on may be decided on a case by case basis.

Banks may, in exceptional cases only, refrain from requesting a complete disclosure of a customer's financial situation where the requirement to disclose would be clearly unjustified due to the type and level of security provided; for example, where the security provided covers the repayment of the loan, including interest, at all times, at the following minimum values or after the following minimum adjustments:
 

* The market value must be determined by an independent expert and it should not exceed 10 times the yearly obtainable rent.

Other securities than mentioned above, especially unquoted securities, are not considered appropriate by the Central Bank. Banks are free to be more prudent in fixing higher markdowns particularly when the market is facing national or international financial problems. However banks should ensure that they hold adequate collaterals in respect of large exposure cases.

The waiver of the disclosure of financial situation may also be justified in the light of the credit-worthiness of guarantors. In this case, the bank must be informed about the financial situation of the guarantors according to the same principles as in the case of borrowers. Moreover, only such persons may be acceptable as guarantors who, in addition to the borrower, have assumed a legal obligation for a particular loan. All persons or enterprises already considered as a single borrower (within a group of related borrowers) are, however, exempted from qualifying as acceptable guarantors for this purpose.

The Central Bank emphasizes that, in the case of unsecured loans, the financial situation of a borrower be always disclosed irrespective of his credit-worthiness.