Banks advised to protect capital

Banks should resist lowering their capital adequacy ratios after the relaxation of Central Bank rules because of continuing economic uncertainty, analysts say.

This week, the regulator told banks they could significantly lower their capital-adequacy ratios, or the capital they hold to back up their lending, in the government’s latest attempt to increase liquidity within the banking system and help stimulate lending.

“Those quotas should not be lowered right now in the middle of a weaker economy and as non-performing loans are still going up,” said Deepak Tolani, analyst at Al Mal Capital. Freeing up reserves may spur lending but it would be safer not do it at this time, Mr Tolani said.