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UAE: Lower capital-adequacy guidelines spark concerns

Economic stimulus needed; More uncertainty about requirements

The UAE central bank issued a circular on August 30 that might effectively mean that the authorities do not require banks to have as high a capital adequacy ratio as before. This might appear to buck the global trend of increasing regulatory capital limits.

Some bankers and analysts, including ratings agencies Moody’s and Fitch, say the circular’s message appears to be intended to help stimulate lending in the federation, especially the emirates of Abu Dhabi and Dubai. Others say encouragements to lend are part of a wider campaign to revive the local property markets, or at least gain better media coverage for Dubai.

"Far from helping revive the market, the main result of the circular may be simply to increase worries about the central bank’s expectations for the banking sector"

The central bank circular said that UAE banks should work towards increasing their total capital adequacy ratio to 11% by the end of September, with minimum tier 1 capital of at least 7%. It said banks must increase their capital adequacy to 12% by the end of June next year, with tier 1 capital of at least 8%.

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