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UAE Delays Higher Target for Bank Reserves

ABU DHABI — The United Arab Emirates Central Bank has delayed bank targets for increasing capital reserves as a buffer for surprise losses and changed the proportion of Tier 1 capital which banks need to set aside.

The rule, which will initially require banks to maintain a Tier 1 capital adequacy ratio of 7 per cent, was added as a measure of “prudence and caution”, the Central Bank said, as it strives to restore confidence among lenders and spur lending.

A circular issued by the Central Bank on Sunday, obtained by Reuters, said banks should work toward increasing their overall reserves to 11 per cent by September 30 and that the Tier 1 component should be at least 7 per cent. Previously, the deadline was on June 30.

Banks are required to set aside a portion of their loans or other assets as a safe form of capital that can be used in an emergency should those loans default. That capital is categorised into tiers according to how secure it is.

Up to now, banks in the UAE did not have a fixed target for Tier 1 capital; rather, the previous rules required that Tier 2 capital be no more than two thirds of Tier 1.

Under the latest guidelines, banks are also required to achieve an overall capital ratio of 12 per cent of risk-weighted assets by June 30, 2010, of which at least 8 per cent must be Tier 1, the circular said.