Measures to prevent UAE bank capital ratios falling from their current levels will support the standalone viability ratings assigned to these banks, according to the US’ Fitch Ratings.

“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,” said Fitch Ratings, adding that capital adequacy and leverage ratios are robust.

Despite the strong metrics, the firm does say prudent measures need to be taken. “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,” said the agency.

MEED reported in early January that the central bank had informed banks they cannot announce proposed dividends directly to the stock markets and the shareholders before taking its approval. The regulator has not issued a formal circular on the subject, but it has verbally communicated to banks.

Financial results and distribution of dividends by the banks require central bank approval in the UAE. However, financial institutions traditionally informed the markets and the shareholders about the dividends proposed by their boards, saying the intended payment was subject to the final approval by the central bank. These gave the markets an indication about the possible payout and the shareholders expected the proposed dividend to be paid without any changes.

In the past, the regulator had allowed the practice to continue and did not make major adjustments to proposed dividends, according to the second banker who requested anonymity. The boards usually took into account what they needed to retain and what they should distribute in dividends, depending on the future requirements before proposing and announcing dividends. But this time, the central bank wants it changed.