Fitch: On UAE Revised Bank Cap Adequacy Guides

Fitch Ratings says today that the Central Bank of the UAE's (CBUAE) revision of minimum capital adequacy requirements for the country's banks may lead the agency to reassess banks' Individual ratings, if they lower their capital ratios too near to the revised minimum levels. Fitch believes that the CBUAE's circular of 30 August 2009 has increased uncertainty within the banking system following the Ministry of Finance's (MOF) October 2008 announcement which had stipulated higher capital requirements.

The CBUAE has now stated that banks only need to have a minimum Tier 1 capital ratio of 7% (included in a minimum total capital ratio of 11%) at end-September 2009 and 8% (total capital ratio of 12%) by end-June 2010. The new temporary rules, which were effective on 31 August 2009, apply to national and foreign banks and will be reviewed at the start of 2011. The CBUAE had previously required a minimum Tier 1 capital ratio of 6% and a total capital ratio of 10%.

In October 2008, the MOF had stipulated minimum Tier 1 capital ratios of 11% by end-June 2009 and 12% by end-June 2010 (no minimum for total capital ratios) for national banks to gain access to Federal government liquidity support programmes. However, at the time of the MOF announcement, and since, the CBUAE made no announcements that its minimum capital requirements had changed. The clarification of the regulator's (CBUAE) requirements appear to have been made as a means of helping to stimulate bank lending, which virtually dried up during H109 as banks tried to meet the MOF's target capital ratios, faced funding constraints and became more cautious as the global economic crisis started to hit the region.