Banks in UAE told to hold 10% liquid assets starting in Jan 2013 

(MENAFN) UAE central bank has introduced a new law requiring banks in the Gulf state to hold liquid assets equal to 10 percent of their liabilities starting from January 2013, Reuters reported.

The new rule comes as the central bank prepares the sector to comply with Basel III global standards.

Physical cash, reserve requirements, central bank instruments and UAE federal government bonds would qualify as such assets, the central bank said in a statement on its website.

It added that banks may also be able to count their holdings of publicly traded debt securities issued by local UAE governments and state entities, as long as securities with a credit rating of A or below do not contribute over 2 percentage points to the ratio.

The UAE's new liquidity requirement for 2013 and 2014 appears to cover the main vulnerability that UAE banks will face as Basel III standards are introduced in around the world over the next several years.

The Basel III Liquidity Coverage Ratio will require banks to hold enough liquid instruments to cover a month of severe cash outflows.

Central bank Governor Sultan Nasser Al Suweidi expected some banks to have difficulties to meet liquidity rules, partly because of the limited choice of liquid instruments available to banks locally.

This could be overcome if the UAE federal government issues bonds which local banks could hold to meet liquidity requirements.

A public debt bill, which was passed by the UAE's top advisory council in December 2010, was designed for such issues. However, it is still pending of the cabinet approval and the presidential signature to become law.