Banks warned of Possible Downgrades by Fitch

The local and foreign banks in the UAE were warned by an international credit ratings agency that if they allow a reduction in their adequacy ratios, subsequent to a Central Bank directive that scraps minimum capital levels for banks; they will have to deal with possible downgrades in their credit ratings.

Monday saw the central bank declaring that it was mulling to alternate its requirements, so that banks maintain a capital adequacy ratio, or CAR, of at least 11 per cent for so-called Tier 1 capital.

Seven percent will be the new minimum ratio and on Wednesday, Fitch Ratings specified that the agency might have to reassess banks' individual ratings - due to the central bank's revision of the minimum CAR for the country's banks - if they decrease their capital ratios too close to the revised minimum levels.

The agency said: "While Fitch does not expect UAE banks to rush quickly towards the new minimum ratios, if any rated bank does, the agency is likely to view such action negatively and may downgrade its individual rating."

It is ambiguous as to why would banks enormously lower their capital ratios, even when a majority of them have increased these ratios, after the Ministry of Finance declared rules for higher minimum capital levels last October.