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Raising the bar
Central Bank plans to raise top quality reserves requirements to 12 percent
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The Governor of the Central Bank, Riad Salameh, said that he plans to raise the minimum level of top quality capital reserves held by banks to 12 percent over the next seven years.

In its overview of the recent banking developments, the Central Bank stated that it plans to set a target for banks' top-quality capital reserves higher than the level agreed upon in Basle III.

The Basle III package agreed by bankers and regulators last year set the capital reserve requirements at seven percent.

Salameh said that he had originally intended to ask banks to raise reserves of Tier 1 capital to ten percent, but that he decided to hike the requirement to 12 percent. He said that his decision was “in response to global economic crisis and European banking woes.” Salameh also said that such a high capital reserve would put local banks “among the highest in terms of capital adequacy.”

According to the Secretary General of the Association of Banks (ABL), Makram Sader, it is still early to determine whether the decision to raise the capital reserves requirement would affect local banks. “We need to wait for the Central Bank to issue the circulars first, but usually such decisions do not have a negative impact because they are well-studied,” he said.

Sader also said that the Central Bank usually gives banks enough time (from three to five years) to raise their capital reserves.

The central bank would issue a directive in the next 45 days setting a ten percent target for Tier 1 capital within four years (by 2015). The target would rise to 12 percent three years later.

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Date Posted: Oct 10, 2011