Central Bank cuts Tier 1 ratio to 7%

The UAE Central Bank has amended the capital adequacy ratio (CAR) norms and mandated all banks in the UAE to achieve a Tier 1 CAR of not less than seven per cent within an overall ratio of 11 per cent by September 30, 2009.

The circular received by lenders yesterday supercedes the earlier notification on CAR issued by the Ministry of Finance that mandated a Tier 1 ratio of 11 per cent by June 30. The easing of Tier 1 ratio by four percentage points will help banks unlock massive liquidity, said analysts and bankers.

The Central Bank circular also required banks to increase overall CAR to 12 per cent by June 30, 2010, with the Tier 1 component not less than eight per cent. "These percentages shall be applied on a temporary basis, and will be re-examined at the beginning of 2011, to determine whether or not to be continued," said the circular