It has been decided to amend the advances to deposits ratio regulation introduced by the then Currency Board in 1977. The purpose of this is to late the said ratio more specifically to the measurement of liquidity.

Accordingly, all banks in the U.A.E. will have to maintain a ratio not higher than 1:1 between :-

– On one hand, the amount of loans and advances together with the amount of interbank placements with a remaining life of more than 3 months and,

– on the other hand, the amount of stable resources comprising of : free own funds, interbank deposits received with a remaining life of more than six months and stable customer deposits.

Local and foreign banks have to abide by the above ratio for their operations in the U.A.E. However, those local banks with branches abroad should also comply with the same rule on a worldwide consolidated basis.*

Local banks may also be requested to include banking subsidiaries and affiliates abroad in their worldwide consolidated position. This will be determined on a case-by-case basis after consultation with the concerned banks.

For the purpose of calculating the ratio the following will apply :-

– Loans and Advances:

Loans and advances include all kinds of outstanding advances to government, public sector, corporate and individual borrowers; the figure is taken into account net of provisions for bad and doubtful debts and interest in suspense.

– Interbank placements:

Interbank placements include any amount, in whatever currency, with a remaining life of more than 3 months due from other banks in the U.A.E. or abroad, from branches abroad or from head office; placements that are regularly rolled over are included if the final maturity leaves a remaining life of more than 3 months.

However, placements having a remaining life of between 3 and 6 months are not included if they are matched in maturity by an interbank deposit; CDs issued by the UAE Central Bank are not included either, whatever be their remaining life.

– Free own funds consist of total own funds as defined by circular no.202 dated 7.6.1983, including the total amount of subordinated loan and, in case of foreign banks, the total amount of funds deposited by head office that cannot be withdrawn without Central Bank authorization.

Less:

– fixed assets,

– funds allocated to branches abroad, when looking at the UAE position of a local bank,

– investments in subsidiaries and affiliates,

– non-marketable securities (BSD-3 item 8.3.1 to 8.3.4),

– goodwill,

– own shares held by the bank,

if the free own funds, as defined above, show a negative figure, this will be deducted from the stable resources.

– Interbank deposits:

Interbank deposits received include any amount, in whatever currency, due to other banks in the U.A.E. or abroad, to head office or to branches abroad, with a remaining life of more than six months.

Customer deposits:

Customer deposits include all kinds of deposits from government, public sector, corporate and individual depositors, in whatever currency. They also include :-

– CDs issued by the bank itself,

– refinancing of real estate loans in the U.A.E.,

– refinancing of loans and advances obtained abroad from the concerned Central Bank or official refinancing authority by foreign branches of U.A.E. incorporated banks, under the condition that such refinancing can be considered renewable and stable.

The estimated stable portion of customer deposits as defined above includes :-

1) 100% of refinancing obtained in the U.A.E. and abroad;

2) 100% of all deposits with a remaining life of more than six months;

3) 85% of all other deposits.

However, the Central Bank reserves the right to fix lower percentages in the case of banks the deposits of which appear particularly volatile, especially where concentration is abnormally high. Such lower percentages would be determined on a case-by-case basis after consultation with the concerned banks.

Banks are expected to comply with the ratio at all times. In addition to random checkings, compliance will be verified on a quarterly basis from the various forms that are already regularly supplied to the Central Bank (BRF-1, BSD-3, MA-1). However, those local banks with branches abroad are requested to fill in a new Maturity Analysis Form 2 (MA-2), to be sent shortly, regarding their worldwide consolidated position as at the end of March, June, September and December.*

Banks that would not fall within the maximum authorized limit are requested to work towards a reduction of their loans and advances and interbank placements and/or towards an increase of their stable resources. The Central Bank may impose on those banks that would still be above the limit after the 31st December 1986 an interest free reserve requirement of 2% of the shortfall in stable resources.

Please note that compliance with the above ratio will be verified for the first time from Banking Return Forms as at 30th September, 1986.

Yours faithfully,

(*)Excess of stable resources available in countries from which funds cannot be transferred because of exchange control regulation will not be taken into account for the purpose of computing the worldwide consolidated ratio.

BSD: FM