UAE banks prepared for Basel III

Abu Dhabi: High capital levels amongst UAE banks indicate that the UAE banks and financial institutions are unlikely to be significantly worried about stricter international rules requiring them to sustain the amount of cash they keep as reserves.

The UAE banking system is stable and has a high level of adequacy with high capital and liquidity, Sultan Bin Nasser Al Suwaidi, UAE Central Bank governor, told the Gulf News on Tuesday.

“The UAE will be applying Basel III gradually until the year 2019 and the UAE banks have no problem if Basel III is applied as they have high liquidity, no cash problems and their capital are already high,” said Al Suwaidi.

The governor said that in the UAE, for example, the Central Bank imposes capital ratios.
“As per Basel III requirements, banks will have to increase their Tier 1 capital ratio to a minimum of 6 per cent, which is a must-to-do measure to ensure banks’ financial resilience and robustness,” said Dr. Waddah Taha, a chief analyst and economist at Zarouni Group.

“The UAE Central Bank’s minimum Tier 1 capital ratio is 8 per cent. Basel III’s minimum total capital requirement of 8 per cent is lower than the 12 per cent capital requirement as the UAE Central Bank forces lenders — banks and financial institutions — to meet,” said Taha.
Dr Numan Ashour, a chief analyst and economist at the CNBC Arabia, told the Gulf News that the UAE banks and financial institutions are qualified and are ready to apply Basel III requirements and recommendation right now.

Dr. Ashour added: “Basel III requires increasing the bank capital from 5 per cent to 7.5 per cent and to increase the ratio of deduction of the banks and financial institutions from 25 per cent as a monetary reserve to 30 per cent.”

The banking sector in the UAE has achieved a Dh24.689 billion (U$6.7 billion) net profits until October 31, 2012, said UAE Central Bank Governor, Sultan Bin Nasser Al Suwaidi, on Tuesday at the 8th high level meeting for the Middle East and North Africa region.

“The net profits of the banking sector in the UAE were Dh24.689 ($6.7 billion) by the end of October 2012,’ said Al Suwaidi.

He added: “The net assets reached Dh1.7 trillion by October 31, 2012 compared to Dh1.6 trillion for the same period of last year. The total deposits amounted to Dh1.16 trillion ($316.4 billion)”.

Al Suwaidi reiterated: “The net lending by end of October 2012 was Dh1.1 trillion ($74.9 billion) while capital funding was Dh274.3 billion ($74.7 billion).”

The signs for the strengths of the UAE banking sector are many, starting from the assets, to deposits and to lending, said the governor.

The Central Bank and the Ministry of Finance are working on three laws to boost the operations of the financial market and the banking sector.

“At the Ministry of Finance, there are now three draft laws. One of them is about the general framework of the financial transactions, the second is about the banking sector and the third is about the Securities and Commodities Authority,” said Al Suwaidi.

In the UAE, there are more than 23 national banks with 807 branches, 28 electronic banking service units and 87 pay offices, he continued, adding that there are six GCC banks and 22 foreign banks which have 83 branches and 52 electronic banking service units.

He added that there are 25 finance companies, 23 investment companies, 120 exchange houses and 4,346 ATMs.

By Shehab Al Makahleh Staff Reporter, @Gulf News 2012, Nov 27 2012