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Basel III recommendations likely to be applied early January 2013

Central Bank to insist on new capital rules from early 2013

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Abu Dhabi: Banking and financial institutions operating in UAE are watching closely as the country’s central bank ramps up its new capital and liquidity framework. This comes ahead of Basel III compliance amidst expectations that it will be applied at the beginning of 2013, Dr Numan Ashour, a chief analyst and economist at the CNBC Arabi, told the Gulf News Wednesday.

“The UAE is preparing local institutions for the Basel III banking supervision standards, which is set to start at the beginning of 2013. The UAE banks and financial institutions are qualified and are ready to apply Basel III requirements and recommendation right now,” said Dr Ashour.

Commenting on the conference that will be held at the end of the month in Abu Dhabi — with main speakers Dr Jasem Al Mannaei, Chairman of the Arab Monetary Fund (AMF), Nasser Al Suwaidi, UAE Central Bank Governor, and many other international and regional financial experts — Dr Ashour said that the meeting will highlight the UAE measures with regard to the implementation of the latest Basel Accord.

Promote financial stability

An AMF source told the Gulf News that the meeting will focus on global regulatory reforms to promote financial stability, confidence in the financial system and economic growth.

“It is expected that the Central Bank will announce the effective date of compliance which 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,” said Dr Ashour.

The new ratios will be effective in January 2013. However, it will make way at the end of 2014 for the more complex liquidity coverage ratio (LCR) of Basel III, he said.

“We don’t expect there to be much of an impact whether on the financing cost or the availability of financing from the banks,” said Dr Ashour, adding that most of the banks in the UAE have high liquidity.

“By end of October 2012, liquidity in the UAE banks had reached a Dh1.3 trillion, which shows the strong position of the UAE banking system,” he said.

Investment purposes

Dr Ashour seconded the UAE government’s call to the banking and financial institutions to give facilities for small and medium size projects (SMEs) rather than for consumption purposes.

“Most of the loans are currently given to consumption purposes rather than investment ones, which is opposite to the intention and directions of the central bank of the UAE. There is a need to help small businessmen as this is the only means to accelerate the development of the country and speed up its economy,” he said.

UAE banks had learnt the lesson from onset of the global financial crisis in 2008 where some banks found themselves a little bit stretched in terms of loan-to-deposit ratios.

“The central bank has found that the loans granted before 2008 reached Dh1.1 trillion while the deposits were only Dh700 million

Hammam Shamma, an analyst, said that the Basel III would be an issue for some smaller banks which have lagged behind with their deposits.

“The Central Bank is aware that this may pose a problem for some institutions. This would lead to issuing federal bonds to ease this issue. However, the overall banking system in the UAE is solid and resilient.”

The application of the recommendations of the Basel III will be in line with the completion of the first phase of Abu Dhabi Financial Centre (ADFC), which is located at Sowwah Island to be the new centre for the Abu Dhabi Stock Market with some financial institutions operating there to provide premium standards to investors and businesses.