UAE banks sort liquidity risk management by new rules
The Central Bank of the UAE (CBUAE) has issued new regulations to domestic lenders. Circular Number 30/2012 issued on 12 July stipulates that by 1 January 2013 lenders must hold 10 percent of their liabilities in liquid assets.
The CBUAE said, “This is an interim measure to ensure banks hold sufficient liquid assets until Basel III LCR comes into effect on 1 January 2015. At such time, this ratio will cease to apply. Therefore, the effective dates for this ratio are from 1 January 2013 until 31 December 2014.
“The ratio is simple and requires the bank to hold an amount equivalent to 10 percent of its total balance sheet liabilities in high quality liquid assets, which are: Cash, Central Bank CDs, Federal Government Bonds (when they become available), and all reserves and account balances held at the Central Bank. UAE Local Governments and Public Sector Entities’ publicly traded debt that has 0 percent Risk Weighted under Basel II standardised approach is also eligible but the amount of these securities rated below “A” is limited to two percent of total balance sheet liabilities.” This ratio will be periodically reassessed and if necessary adjusted to reflect the appropriate Central Bank policy.
The CBUAE is also requiring lenders to put guidelines in place for liquidity risk management and have a ‘forward looking funding strategy’ that focuses on diversifying the sources and tenor of funding. Banks must also regularly conduct liquidity stress tests and ‘maintain an adequate cushion of unencumbered, high quality liquid assets to be held as insurance against a range of liquidity stress scenarios’.
- Need some space? UAE's banking sector is getting too crowded
- Bank funding in the Middle East doesn't boil down to liquidity alone
- Why is the Israeli shekel so weak?
- What doesn't kill you, makes your stronger: why the Arab Bank is likely to emerge from the Israeli lawsuit 'unscathed with flying colors'
- Too foreign? An inside look into the struggles of foreign banks in Saudi Arabia