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.

6.These Standards apply to all banks. Banks must ensure that these Standards are adhered to on a consolidated basis. The group level capital adequacy ratio requirements must measure the capital adequacy of a bank based on its capital strength and risk profile after regulatory consolidation of assets and liabilities of its subsidiaries as specified herein.

7.Note that the solo-level capital adequacy ratio requirements, which measure the capital adequacy of an individual bank based on its stand-alone capital strength, will be issued at a later stage

8.These Standards should be read in conjunction with the associated guidance issued by the Central Bank (Guidance for Capital Adequacy of Banks in the UAE – September 2020).

9.Banks designated by the Central Bank as domestic systemically important banks are required to hold additional risk-based capital ratio buffers, applied to Common Equity Tier 1 (CET1). Banks are notified individually by the Central Bank with regard to the additional requirements.

10.All banks must maintain a leverage ratio of at least 3.0%. Designated domestic systemically important banks must maintain a leverage ratio of at least 3.5%.

11.Banks must report to the Central Bank on their capital position in the format and frequency determined by the Central Bank.

12.A bank must provide the Central Bank with any specific information with respect to its capital positions upon request.

13.An Independent review of the Central Bank’s Capital framework implementation by internal audit is required every year. However, if the Central Bank is not satisfied with the internal audit, Central Bank may require an external review.

14.For D-SIBs, in addition, an independent external review is required every 3 years.

15.The Regulatory Development Division of the Central Bank shall be the reference for interpretation of the provisions of these Standards.

16.The following Standards are already in effect as follows:

• •The Tier Capital Supply Standard
• •Tier Capital Instruments Standard
• •Pillar 2 Standard

17.The remaining Standards will be effective from Q2 2021 onwards.

18.Banks must continue to submit the existing Basel Capital reports (live reporting (production) for BRF 95, CAR Returns workbook and Pillar 3).