The UAE Central Bank expanded its large exposure limit rules for commercial banks, introducing new caps for loans made to local governments and their entities in the first such change in nearly two decades.The oil-reliant UAE economy is recovering from the 2009-2010 debt crisis in Dubai, marked by a $25 billion debt restructuring and record high provisions against bad loans, many of them to government entities. These provisions rose 25 percent to 55.3 billion dirhams ($15.1 billion) in December. The regulator set new limits of 100 per cent of the capital base for all lending by a bank to governments of the seven-member UAE federation and their non-commercial entities, and 25 per cent to individual borrowers. No such limits existed before. Analysts welcomed the move. \"For us, concentration risk for local banks, especially regarding government-related entities, is one of the biggest risks faced by UAE banks,\" said Khalid Howladar, vice president - senior credit officer GCC financial institutions at Moody\'s. The central bank also adjusted a range of other percentage limits, including for commercial government-related entities, where it introduced a cap of 15 per cent for funded exposure for individual borrowers and 100 per cent on aggregate, it said in a circular issued to banks on April 4 and visible on the central bank\'s website on Thursday. The federal government was also included in the rules for the first time. The capital base is the same as that used for capital adequacy purposes, the central bank said. After annual consultations that ended last month, the International Monetary Fund urged the UAE to enforce limits on bank exposure to individual GREs, saying the central bank could consider imposing higher capital charges or forward provisioning on risky state firms. Shielding the banking system in one of the world\'s top five oil exporters from further GRE risks would be key, the IMF said, adding that the UAE banks\' net exposure to government and public institutions rose by Dh44 billion ($12 billion) in 2011, or 3.5 per cent of gross domestic product. \"Some of these exposures are not consistently classified across banks\' balance sheets and government fiscal accounts, which could lead to non-transparency in bank regulatory compliance,\" the Fund said. \"There is a risk that GREs could increasingly turn to domestic banks for their funding needs in the period ahead in case they face difficulties in external market financing. The mission stresses the importance of avoiding channeling bank funding to non-viable GREs in order to maintain the integrity of the banking system,\" it said in its report. Most UAE banks have large capital cushions by international standards and the Central Bank has said their exposure to debt crisis-hit Europe is only minor. Central Bank Governor Sultan Nasser al-Suweidi said on Wednesday the Gulf country needed to develop rules and institutions allowing banks to control and oversee mortgages effectively, which would help manage risks and encourage property lending. In another development, Al Bayan newspaper reported that the Central Bank is considering a mortgage law that would stipulate real- estate records, guarantees and a dispute resolution mechanism. The aim of the law is to encourage banks to accept homes as preferred collateral for debt, the newspaper reported citing Central Bank Governor Sultan Bin Nasser Al-Suwaidi.