1.The Central Bank seeks to promote the effective and efficient development and functioning of the banking system. To this end, banks are required to manage their capital in a prudent and sustainable manner. It is important that banks’ risk exposures are backed by a strong capital base of high quality in order to contribute to the stability of the financial system of the UAE.

2.In introducing these Standards, the Central Bank intends to ensure that banks’ capital adequacy is in line with the minimum standards as published by the Basel Committee on Banking Supervision, i.e. the Basel II: International Convergence of Capital Measurement and Capital Standards, June 2006, which was implemented in the UAE in 2009 (Capital Adequacy Standards, Standardised Approach), and the ‘Basel III: A global regulatory framework for more resilient banks and banking systems’, commonly referred to as ‘Basel III’.

3.These Standards support the regulations and elaborate on the supervisory expectations of the Central Bank with respect to capital adequacy requirements. These standards are issued pursuant to the powers vested in the Central Bank under the Central Bank Law.

4.Where these standards, include a requirement to provide information or to take certain measures, or to address certain items listed at a minimum, the Central Bank may impose requirements, which are additional to the listing provided in the relevant article.

5.The Standards follow the calibration developed by the Basel Committee, which includes a maximum risk weight of 1250%, calibrated on a total capital adequacy requirement of 8%. The UAE instituted a higher minimum capital requirement of 10.5% (excluding capital buffers), applicable to all licensed banks. Consequently, the maximum capital charge for a single exposure will be the lesser of the value of the exposure after applying valid credit risk mitigation, netting and haircuts, and the capital resulting from applying a risk weight of 952% (reciprocal of 10.5%) to this exposure.