UAE banks need to use a more diverse range of risk management tools and practices to ensure their competitiveness across the world as Basel II gets fully implemented, a study from The British University in Dubai (BUiD), the Middle East’s leading research-based postgraduate university, has revealed.
The timely thesis, completed by BUiD student Shaima Al Hussiny, looked at risk management and its importance to the fundamental operation of banks in the UAE. The study comes ahead of the global implementation of the Basel II agreement – a series of recommendations on banking laws and regulations to create an international standard – set to be introduced later this year.
The thesis revealed that UAE banks are currently facing a relatively narrow range of risks, which indicated that they are not using a particularly diverse range of risk management practices. The banks have focused on the relatively blunt tools of risk mitigation and risk elimination, rather than taking a more advanced strategic approach, according to the findings.
Dr. John Anderson, Senior Lecturer in Finance and Banking at BUiD, said: "A greater ability to measure and monitor risk will play a key role in the safety of UAE banks, and will also be vital in ensuring the competitiveness of UAE banks as Basel II gets fully implemented across the world. As we enter a transitional period within the banking industry, there is a crucial need for more skilled professionals in risk management in the UAE."
Shaima Al Hussiny, Finance and Banking student at BUiD, said: “The thesis was a challenging project and the results highlight some crucial issues within the UAE banking industry. I hope that once Basel II takes full shape in UAE, more advanced risk management tools and practices will be implemented.”
The thesis was conducted through questionnaires answered by risk managers across UAE banks. The questionnaire was composed of three main parts and focused on key areas, including the degree of understanding and implementation of risk management, the most efficient tools and techniques available for the management of risk, the extent to which managers are aware of the risks associated with their actions and goals, and if the Basel II agreement assisted or hindered risk management amongst banks in the UAE.
Since banks in the UAE are still currently in the process of implementing Basel II accord, impact in the UAE could not be answered. The study pointed out that some Basel II compliant banks around the world have collapsed implying that Basel II is not sufficient to protect banks against all risks. However, it is interesting to note that these collapses were cited on the inability of banks to actually manage their customer and capital risks, and not on the shortcomings in the Basel II Accords.
“As we enter a changing climate in the banking and finance industry with Basel II in the process of being implemented in UAE banks, it would be interesting to take the study forward once the implementation is complete. This will help produce a better understanding of the impact of Basel II on the UAE banks, as well as demonstrate how the implementation of the Basel II agreement will change risk management practices in general,” added Shaima Al Hussiny.