In order to organize lending against pledge of company shares, for the benefit of the banking and financial system in the UAE, the Board of Directors of the Central Bank has resolved to establish the following rules:

1. No loans should be extended to purchase shares except against tangible securities, among which shares of joint stock public companies, newly established or those under establishment.
    
2. Loans extended to the founders of companies against the pledge of their allotted shares should not exceed 50% of the nominal value of those shares. This position continues until the expiry of the legal period required to maintain ownership of these shares as per companies law, thereafter, they will be treated as in (4) below.
    
3. Loans extended to subscribers in the public subscription of companies under establishment against an undertaking to pledge their allotted shares should not exceed 10% of the nominal value of the subscribed shares, except in case where the issuing company or the bank receiving the subscription funds (subscription bank) undertakes to refund excess funds directly to the lending bank (or lending party). In this case, lending may be extended to maximum fivefolds the amount contributed by the subscriber for the purchase of IPO shares
    
4. Loans extended against pledge of allotted shares in the public subscription of newly established companies should not exceed 70% of the book value of these shares. This limitation shall remain valid until these companies have been in operation for five years.
    
5. Loans extended against pledge of shares of companies which have been in operation for more than five years should not exceed 80% of the market value of these shares.
    
6. Banks and other financial institutions operating in the UAE may extend loans to purchase shares of companies established in the other AGCC countries, as per paragraphs (2), (3), (4) and (5) above, but with a maximum, in all cases, of 40% (the 10% in (3) above remains as it is in similar cases), and on condition that they must comply with all local laws prevailing in the country of origin of the company.
    
7. In case borrowers pledged other assets (such as deposits, shares of other companies, property, bonds) or their application included submitting various securities, priority should be given to securities according to quality and degree of liquidity.

It should be noted that in case any of the banks (lending parties) violated the monetary policy by undertaking book-lending in order to lend subscribers to shares (or other securities), whether directly or indirectly, the Central Bank shall deprive such banks from the entire amount of the resulting interest, by debiting their accounts with it. Please note that book-lending means loans which have no corresponding customer deposits, capital and reserves of the lending party.

Please withdraw and cancel our Notice No. 311/96 of 4/6/1996, and our Circular No. 19/97 of 4/11/1997.