Fresh capital could be needed by up to 20 per cent of banks in the Middle East and North Africa (MENA) to safely meet requirements under the global Basel III banking rules, a research report from Arqaam Capital said on Wednesday.
Of the 54 banks covered by the firm, seven were considered to be undercapitalised, including the largest lenders in Dubai and Bahrain – Emirates NBD and Ahli United Bank.
A further five banks, including Kuwait’s biggest Islamic bank, Kuwait Finance House, and Commercial Bank of Qatar, the state’s second-largest conventional bank, risked requiring more capital due to paying out high dividends.
“We are not rushing banks to improve their capital structure as some banks do generate enough retained earnings compared to their capital consumption and we think banks should adjust their dividends to prepare for the new higher capital requirements,” the report said.
“We see capital weakness or strength as a hidden value that is often neglected in stock analysis in this region.”
Arqaam said its calculations were based on a minimum core equity tier one ratio of 12 per cent – effectively, the 9.5 per cent considered by Basel to be necessary for systematically-important banks with an additional 2.5 per cent premium for MENA banks due to their higher risks than global lenders.