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By reminding banks at the outset of the year that clearance must be obtained prior to announcing dividend payments, the UAE central bank is signalling prudence in a tougher operating environment, Fitch ratings said in a statement issued today.
“Capital adequacy, as measured by Fitch core capital as a percentage of risk weighted assets, is strong, reaching an average of 16 per cent at (the end of the third quarter 2015) at Fitch-rated UAE banks,” Fitch said. “Leverage ratios are also robust, averaging 12.5% at end-3Q15. In general, asset quality and risk appetite are more influential factors in the viability ratings of UAE banks than capitalisation and leverage as we believe they have solid capital ratios. But the banks need to maintain solid capital buffers, especially because risk concentrations tend to be high and loss absorption capacity needs to be upheld to cover potential unexpected losses, which could be significant.”
Fitch said UAE banks are some of the most profitable among GCC peers. Rated banks are reporting an average operating return on equity in excess of 16 per cent. Internal capital generation capacity is strong, held up by wide margins, solid loan growth and contained impairment charges at the banks.
“Historically, bank dividend payouts have been high, averaging about 50 per cent, and affordable because profitability has been high,” Fitch said. “But we think banks’ performance indicators are unlikely to improve in 2016 as loan growth moderates, loan quality starts to deteriorate and liquidity remains tight.”
Banks represent 45 per cent of all quoted stocks in the UAE.