UAE enforces tighter capital adequacy rules

Tighter Basel capital adequacy rules will be brought in for banks operating in the UAE

DUBAI - The United Arab Emirates (UAE) will introduce stricter rules for banks' capital adequacy, despite its existing system having higher adequacy ratios than recommended under Basel II, according to one Saudi Arabian bank.

Saudi American Bank (Samba) said the UAE's 24 domestic banks and 24 foreign units would need to increase capital adequacy ratios to 11% by July 2009 and to 12% by July 2010, citing a recent decision by the UAE central bank.

"Efforts are being made to shore up UAE banks' capital to enable them to withstand financial pressures as non-performing loans increase and asset prices fall, especially real estate," said Samba in a statement.

UAE bank capital ratios have traditionally been high, but had been falling over the past few years - reaching 13.4% on aggregate at the end of 2008. Central bank governor Sultan bin Nassir Al Suwaidi has said that while he is satisfied with the performance of UAE banks, they must consolidate their capital basis because of the global crisis.

Under current Basel II regulations, the capital adequacy ratio requirement is 8% - although the UAE already operates a 10% ratio. Basel II says Tier 1 capital must be at least 4% of total risk-weighted assets, whereas the UAE maintains a tighter 6% minimum ratio, while ruling that Tier 2 capital cannot exceed 67% of Tier 1.