* Central bank chief says no rule changes without consultation
* New rules to be announced after 6-9 months
* Follows strong protests by commercial banks
* Three regulatory climb-downs in past year
* Raises questions about regulation as UAE recovers (Adds analysis, context)
By Andrew Torchia
DUBAI, Jan 22 (Reuters) - The United Arab Emirates central bank has confirmed it will not impose limits on mortgage loans without consulting commercial banks, after an attempt to introduce such rules triggered fierce protests from the banks.
It is the third time in the past year that the central bank has introduced regulations designed to reduce risk in the banking sector, only to back off from enforcing them after meeting opposition in the business community.
The incident raises questions over authorities' regulation of banks as the UAE recovers from Dubai's corporate debt crisis of 2008-2010 and seeks to avoid the boom-and-bust cycle that plagued its real estate market in the past decade.
A circular sent to commercial banks by the central bank late last month, and seen by Reuters, said mortgage loans for foreign individuals should not exceed 50 percent of property value for a first purchase of a home, and 40 percent for subsequent homes. Caps for UAE citizens were set at 70 percent and 60 percent.
But UAE state news agency WAM on Tuesday quoted central bank governor Sultan Nasser al-Suweidi as saying the circular would not be enforced and was merely intended to help banks prepare for eventual rule changes which would reflect their feedback.
"There is no such system regulating real estate financing for individuals. This is now a proposed system to be issued after consultation with the banks," WAM quoted Suweidi as telling Abu Dhabi television.
The central bank intends to introduce regulations covering the mortgage market but only after six to nine months, and there are no current discussions on possible percentages for mortgage caps, he added.
The central bank's climb-down was first reported in comments attributed to Suweidi by Al Ittihad newspaper on Monday.
Last month's central bank circular was met by a storm of protest, with bankers complaining they were not consulted and that the rules could hurt banks and slow the UAE real estate market's recovery from its 2008-2010 crash.
The Emirates Bank Association, the industry's lobbying group, met last week and agreed to submit formal proposals to the central bank to water down its rules.
The controversy recalled two previous climb-downs by the central bank. It announced last April that from Sept. 30 last year, banks would have to limit their exposure to state-linked entities. Some big banks were above the limits when the deadline passed, and in December, the central bank announced it was suspending the rules while it consulted banks.
Similarly, requirements for banks to hold a certain proportion of their assets in liquid instruments were announced last year and then suspended.
The central bank does not publicly discuss its decisions and it is not clear why it has backed down from enforcing regulation. Suweidi, who began his career in Abu Dhabi's sovereign wealth fund, has been in his position since 1991; last November, top Abu Dhabi banker Khalifa Mohammed al-Kindi became the central bank's new chairman.
The UAE and particularly Dubai are financial centres for the entire Gulf, so commercial bankers have considerable influence.
Also, there is likely to be some debate within the government over how much regulation should be allowed to slow economic growth. Dubai depends more on its banking sector and real estate market than Abu Dhabi, which has huge oil reserves.
A UAE commercial banker, who declined to be named because of the sensitivity of his remarks, said the central bank was now trying to save face after causing confusion among bankers and their customers with "unilateral and arbitrary directives".
Mortgage caps are the right way to keep speculators out of the UAE's property market but the original circular was too harsh, said Fadi Moussalli, regional director at global real estate services firm Jones Lang LaSalle.
"The law sends the right signal to the market as it aims at limiting the brutal ups and downs of prices, but we feel that the first draft was too quick, too simple and too harsh." (With additional reporting by Stanley Carvalho and Mirna Sleiman; Editing by Hugh Lawson)