Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
21Activity
0 of .
Results for:
No results containing your search query
P. 1
UAE Banks Stress-test Results

UAE Banks Stress-test Results

Ratings: (0)|Views: 502|Likes:
Published by BRR_DAG
Shuaa Capital's (SC) "stress test" on a sample of eight UAE banks, which account for almost 70% of FY09 banking system assets, suggests that on average, the banking sector is sufficiently capitalized to withstand significant deterioration in asset quality. Under SC's base case, average total CAR for our sample at 14.9% is well above the 12% UAE minimum, and average Tier 1 capital at 9.8% is above the 8% UAE minimum. Under SC's conservative "worst case" assumptions, average total CAR drops to 11.8% and average Tier 1 CAR falls to 6.5%; both are still above the Basel II international standards.
Shuaa Capital's (SC) "stress test" on a sample of eight UAE banks, which account for almost 70% of FY09 banking system assets, suggests that on average, the banking sector is sufficiently capitalized to withstand significant deterioration in asset quality. Under SC's base case, average total CAR for our sample at 14.9% is well above the 12% UAE minimum, and average Tier 1 capital at 9.8% is above the 8% UAE minimum. Under SC's conservative "worst case" assumptions, average total CAR drops to 11.8% and average Tier 1 CAR falls to 6.5%; both are still above the Basel II international standards.

More info:

Published by: BRR_DAG on Aug 02, 2010
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

07/19/2011

pdf

text

original

 
UAE Banks Put To The Test
Banks & DiversifedFinancials
Sofa El Boury
+9714 3199 716selboury@shuaacapital.com
Ghida Obeid
+9714 3199 729gobeid@shuaacapital.com
Economics
Khatija Haque
+9714 3199 752khaque@shuaacapital.com
August 1st, 2010
•TheslowrecoveryofprivatesectorcreditgrowthinH110isoneofthekeyfactorsunderminingtheUAE’seconomicrecovery.Webelievemuchoftheriskaversiononthepartofbanksstemsfromuncertaintyaboutpotentialfuturelossesandwrite-downs.•Our“stresstest”onasampleofeightUAEbanks,whichaccountforalmost70%ofFY09bankingsystemassets,suggeststhatonaverage,thebankingsectorissucientlycapitalizedtowithstandsignicantdeteriorationinassetquality.Underourbasecase,averagetotalCARforoursampleat14.9%iswellabovethe12%UAEminimum,andaverageTier1capitalat9.8%isabovethe8%UAEminimum.Underourconservative"worstcase"assumptions,averagetotalCARdropsto11.8%andaverage Tier1CARfallsto6.5%;botharestillabovetheBaselIIinternationalstandards.•Additionalcapitalinjectionswouldberequiredforindividualbanksinallourscenarios,rangingfromAED2.5bn(USD669mn)inourbasecaseuptoAED15.8bn(USD4.3bn)inourworstcase.Webelievethattheauthoritieshavethecapacitytoprovidethisnancialsupport,ifeverrequired.•Inourview,additionalmeasurescouldbetakenbytheauthoritiestocleanup”UAEbanks’balancesheets,torestorecondenceandencouragebankstoresumelendingtohouseholdsandbusinesses.Inparticular,theIrishapproachofremovinghigh-riskassetsfrombalancesheetsandreplacingthemwithlow-riskgovernmentsecuritiesshouldbeconsideredintheUAEcontext,inourview.•However,broadstructuralandeconomicreform,includinggreatertransparencybybanks,islikelytobethemosteectivetoolforrestoringcondenceandimprovingaccesstofunding,aswellasencouraginggreaterinvestmentandeconomicgrowthoverthelonger-term.
 
August1st,
2010
2
UAE Banks Put To The Test
Contents
EXECUTIVE SUMMARY ..................................................................................................................3POST-CRISIS RECOVERY IN PRIVATE SECTOR CREDIT HAS BEEN SLOW ...............................................5
OUTBREAK OF THE CURRENT CRISIS AND POLICY RESPONSES TO DATE .......................................................................................................................5WHAT HAVE UAE BANKS DONE WITH THEIR LIQUIDITY? ...............................................................................................................................................6
IS THE UAE BANKING SECTOR SOLID ENOUGH TO WEATHER THE STORM? ...........................................7
AIMS AND METHODOLOGY ...............................................................................................................................................................................................7BASE CASE SCENARIO IMPACT ASSESSMENT .................................................................................................................................................................9FOUR ALTERNATIVE SCENARIOS .....................................................................................................................................................................................10RESULTS .............................................................................................................................................................................................................................11THE AVERAGES LOOK GOOD, BUT THE DEVIL IS IN THE DETAIL... .................................................................................................................................12
DEALING WITH THE FALLOUT OF A FINANCIAL CRISIS: DRAWING ON INTERNATIONAL EXPERIENCE ......15
DE-RISKING IRISH BANKS ...............................................................................................................................................................................................15SPANISH BANKS RESTRUCTURE AND TAKE STRICTER PROVISIONS. ...........................................................................................................................16
CONCLUSIONS AND RECOMMENDATIONS .......................................................................................17
SO WHAT COULD BE DONE TO ENCOURAGE BANKS TO RESUME LENDING
 
? .............................................................................................................17
APPENDIX ..................................................................................................................................18
UAE FY09 ASSET QUALITY METRICS VS. OTHER ECONOMIES ......................................................................................................................................18UAE FY09 CAR VS. OTHER ECONOMIES ..........................................................................................................................................................................18
 
August1st,
2010
3
UAE Banks Put To The Test
Executive summary
 TheUAE’seconomyandbankingsystemwerenotimmunetotheglobalnancialcrisis.
Although the worst of the recession appears to be behind us, UAE banks remain risk averse and reluctant to extend credit to the private sector.
 ThelatestUAECentralBankstatisticsshowthatbankloansgrewamere0.8%inH110,downfrom1.5%inH109and24%inH108.
We believe much of this risk aversion on the part of banks stems from uncertainty aboutpotential future losses and write-downs. Our analysis aims to estimate just how big thesepotential losses may be, and whether UAE banks would be able to absorb them if theymaterialize.We have focused on what we consider to be the riskiest assets on UAE banks’ balancesheets:
•Realestateandpersonalloansextendedin2008–atthepeakofthecreditandrealestateboominthecountry;•PotentiallossesassociatedwithbanksexposuretoSaadandAlGosaibiandDubaiWorld;•And“renegotiatedloans,whichappearedonmostbanks'FY09nancials
1
.Finally,wehavetakenintoaccountthefactthatDubai-basedbanksincurahigherriskassociatedwiththeirrealestateexposurethanAbuDhabi-basedbanks.
Our base case suggests that UAE banks are, on average, capable of absorbing thepotential losses associated with more stringent default assumptions
,thankslargelytotheauthoritieseortstostrengthenbanks’balancesheetssincetheonsetofthecrisis.TheimpliedNon-PerformingLoan(NPL)ratiorisesfrom3.3%to8.4%,whiletotalCapitalAdequacyRatio(CAR
2
)remainshealthyat14.9%andTier1capitalremainsaboveregulatoryrequirementsat9.8%.AlthoughEmiratesNBDandADCBwouldbetheonlybanksneedingacombinedAED2.5bn(USD669mn)ofadditionalTier1capitaltomeetthestringentUAErequirements,allthebanksinoursamplecomplywithBaselIIstandards.Inour“worstcase”scenario(#4)whereweassumewhatweconsideredtobethemaximumdefaultratesonbothrealestateandpersonalloansextendedbybanksin2008,averagetotalCARismarginallybelowtheCentralBank'srequirement,whiletheaverageTier1capitalratioremainsabovetheBaselIIoor.
Summary conclusions:
 
Avg NPLratio (%)Avg TotalCapital (%)Avg Tier 1Capital (%)Cash provision shortall or100% NPL coverage (AED bn)Tier 1 capitalrequirements(AED bn)
Actual FY 09
3.319.114.2
Base case Scenario
8.414.99.842.52.5
Scenario 1
9.114.49.247.85.4
Scenario 2
9.514.18.950.15.1
Scenario 3
10.613.28.058.49.2
Scenario 4
12.311.86.571.315.8
Source: SHUAA Capital 
1 Except Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB) out of our eight UAE banks sample2 Total capital adequacy is Tier 1 plus Tier 2 capital. The UAE regulatory minimum was set at 12% by end-June 2010, and the Basel II minimum is 8%. For Tier 1 capital alone, theUAE minimum requirement is currently 8% and the Basel II minimum is 6%.

Activity (21)

You've already reviewed this. Edit your review.
1 thousand reads
1 hundred reads
Dhuhafadhel liked this
Gek Chuin liked this
Bülent Öztürk liked this
Hamid Azmi liked this
satwikr liked this
kamhim liked this
emane1 liked this
Hamid Azmi liked this

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->