x Abu Dhabi, UAEWednesday 26 July 2017

Gulf banks join protest over tough rules

Gulf banks join international lending giants in railing against incoming Basel III regulations which will require additional capital reserves for banks considered "too big to fail".

Gulf lenders have complained that higher capital buffers for big banks will reduce competition. Pawan Singh / The National
Gulf lenders have complained that higher capital buffers for big banks will reduce competition. Pawan Singh / The National

Gulf lenders are among a group of international banks in the US that have protested against additional charges to be imposed on banks deemed too big to fail.

The charges are intended to prevent the world's major banks from repeating the mistakes of the global financial crisis.

The Institute of International Bankers, an association that represents lenders including Doha Bank, Arab Banking Corporation and Abu Dhabi International Bank, the American arm of National Bank of Abu Dhabi, has complained that higher capital buffers for big banks will reduce competition.

The Basel capital surcharge will "lead to unjustified competitive inequities between large banks" subject to the charge and others that are not, the group said in a draft letter obtained by Bloomberg News.

Capital surcharges agreed to by America's Federal Reserve and international regulators are "deeply flawed" and "reflexively based on the notion that size alone creates prudential concerns", the letter added.

But analysts said the banks' complaint was more likely a reflection of the anxieties of larger lenders, including Barclays, Credit Suisse and Deutsche Bank, over their ability to sustain profits as regulation tightened.

The Basel III rules, which were redrawn in the wake of the worst financial crisis since the Great Depression, are an attempt to prevent a repeat of the conditions that caused the collapse of Lehman Brothers and sent the global economy into a severe downturn.

Banks whose financial health is considered systemically important to the health of the wider financial system must hold a larger capital buffer of between 1 and 2.5 percentage points of common equity capital, with additional disincentives in place to discourage rapid expansion of balance sheets through acquisitions.

Banks will have until 2019 to fully comply with the new capital requirements. A list of the banks that will have to hold this additional reserve of capital has not yet been made available by the Financial Stability Board in Basel, but the full list is expected to be published by November.

It is likely to include lending giants operating in the Gulf including Deutsche Bank, BNP Paribas, HSBC and Barclays, according to research from Morgan Stanley.

Middle Eastern banks are expected to incur negative effects from the implementation of the Basel rules, particularly those in the UAE, Qatar and Lebanon given their capital structures, according to estimates from AlembicHC.

Among the UAE's lenders, Commercial Bank of Dubai is expected to be the best capitalised, followed by First Gulf Bank.

ghunter@thenational.ae