The Central Bank is working on a new liquidity requirements system for the country’s commercial banks, prompted by their solid capital base and the latest Basel 3 adequacy rules for banks worldwide.
In its first quarter bulletin released this week, the central bank said the 51 banks operating in the UAE generally control an adequacy ratio that far exceeds the Basel 3 Tier 1 requirement of a minimum seven per cent for all banks, with their combined Tier 1 adequacy reaching 16.1 per cent at the end of March.
Their general capital adequacy stood at 20.7 per cent following an eight per cent increase in the banks’ shareholders equity to nearly Dh278.6 billion, it said, adding that the level is far above the 12 per cent floor set by the central bank for the country’s 23 national banks and 28 foreign units in June 2010.
The report said the high adequacy level shows banks in the UAE, the second largest Arab economy after Saudi Arabia, enjoy a “solid and strong” capital base that allows them to “ease the burden of allocating more loan loss provisions.”
“Tier 1 adequacy for UAE banks is estimated at 16.1 per cent……this means they enjoy an adequacy that surpasses international requirements… in this respect, the central bank is currently working on devising a new system that will define liquidity for banks in the country,” it said.
The report said the banks’ large capital allows them to maintain their ability to lend to the public and private sectors, adding that domestic credit picked up by around 1.6 per cent in the first quarter of 2011 to reach Dh1,048 billion compared with 0.4 per cent in the first quarter of 2010.
“This is a reasonable increase considering the weak demand for credit by local companies and the careful lending policy adopted by banks,” it said.
The report showed personal loans edged up by only around 0.3 per cent to Dh247.9 billion to reach nearly 24 per cent of total credit. Loans to the government rose by about 2.7 per cent while those to the private sector by around 0.3 per cent. Mortgage credit dipped by 1.3 per cent.
At the end of the first quarter of 2011, the combined assets of UAE banks surged by about Dh90 billion to Dh1,696 billion from Dh1,606 billion at the end of the first quarter of 2010, the figures showed.