Featured Product

    IMF Publishes Report Under the 2018 Article IV Consultation with UAE

    February 01, 2019

    IMF published its staff report under the 2018 Article IV consultation with the United Arab Emirates (UAE). The report highlights robustness of the banking system and notes that bank profitability, liquidity, and capital buffers remain strong, despite an uptick in the non-performing loans (NPLs). The central bank and banking law was approved in October 2018, envisaging increasing the central bank of the UAE's (CBU) capital, enhancing central bank independence, improving the prudential framework, and strengthening the ability of supervisors to take action, if necessary.

    The capital adequacy ratio has remained above 18% in the second quarter of 2018. Bank liquidity has improved further with increased oil prices. With the economy recovering only gradually, NPLs rose, reaching 7% of total loans in the second quarter of 2018 (from 6.4% at the end of 2017). While small and medium enterprises (SMEs) and households led the NPL increases in 2017, the latest increase was mostly driven by government-related entities (GREs) and other large corporates. Despite the increase, NPLs remain fully provisioned. Transition to IFRS 9 has also prompted banks to increase provisioning, although it has not had an apparent impact on NPLs. Increased risks warrant heightened supervisory vigilance. Commencing issuance of domestic debt securities and strengthening the central bank’s liquidity management framework will promote financial market stability and development. The IMF staff recommends that ongoing initiatives to upgrade the regulatory framework should continue. Conducting stringent stress tests and following up with banks on their results would help maintain financial sector stability. 

    The staff welcomed the progress of CBU in modernizing the regulatory framework in 2018. The medium-term reform agenda is built around five pillars: risk management, Basel III, controls/compliance, resolution, and market development, along with an overarching corporate governance framework. The pillar on risk management was completed in 2018, with the issuance of a new risk management framework for banks. It comprises five regulations covering overall risk management, operational risk, market risk, interest rate risk, and country and transfer risk. New regulatory standards supporting the Basel 2017 capital regulation (leverage ratio, CCR, OTC, and CVA) was expected to be published in 2018. This will complete the work on the Basel III pillar in line with international set timeframes (Basel III liquidity regulations were issued in 2015). All banks in UAE currently comply with the Basel III regulatory requirements and CBU expects that they will also comply with the new regulatory standards. 

    The pillar on controls and compliance was largely completed in 2018. Regulations on internal controls, compliance, and internal audit, which give significant responsibility to the heads of compliance and internal audit, as well as financial reporting and external audit, which require transparent financial reporting and high quality external audits in banks, were issued in 2018. This pillar will be fully completed in 2019, with the issuance of two further regulations for banks on major acquisitions and significant ownership transfer. In 2019, CBU plans to commence regulatory development work on the resolution pillar, which will cover recovery and resolution planning. Work will also progress in the consumer protection area and on a new regulatory framework on Islamic finance in the UAE. Beyond bank finance, fostering the development of domestic capital markets and a coordinated approach between on-shore and off-shore regulators in the fintech area would broaden SME sources of capital, while mitigating financial risks.

    Under the market development pillar, CBU issued in 2018 a regulation for nonbank financial institutions, which sets out the new regulatory framework for finance companies operating in the UAE, including requirements for a specific business model, governance, risk management and controls/compliance. A regulation on crowd-funding is nearly completed and a strategy aimed to support the financing of the UAE’s micro, small and medium-size (SME) business (including regulations) in coordination with other UAE authorities was further developed in 2018. In 2019, CBU plans to commence further work on regulations related to payments and fintech. The new corporate governance framework for banks operating in UAE was expected to be issued by the end of 2018. The framework introduces sector-wide polices in line with international best practices, such as the inclusion of independent directors in banks’ boards and mandatory committees, the reinforcement of the fit-and-proper process for members of boards and senior management, and the introduction of minimum disclosure requirements in banks’ annual governance reports.

     

    Related Link: Staff Report

    Keywords: Middle East and Africa, UAE, Banking, Securities, Article IV, Basel III, IFRS 9, Liquidity Risk, Recovery and Resolution Framework, IMF

    Featured Experts
    Related Articles
    News

    SEC Adopts Rules and Amendments Under Regulatory Regime for Swaps

    SEC announced that it took a significant step toward establishing the regulatory regime for security-based swap dealers (SBSDs) by adopting a package of rules and rule amendments under Title VII of the Dodd-Frank Act.

    September 19, 2019 WebPage Regulatory News
    News

    APRA Revises Standard on Margin Rules for Uncleared Derivatives

    APRA revised CPS 226, which is the prudential standard on margin and risk mitigation requirements for non-centrally cleared derivatives.

    September 19, 2019 WebPage Regulatory News
    News

    BIS Formalizes Agreement to Set Up Innovation Hub in Hong Kong SAR

    BIS and HKMA signed the Operational Agreement on the BIS Innovation Hub Center in Hong Kong Special Administrative Region (SAR).

    September 18, 2019 WebPage Regulatory News
    News

    PRA Proposal on Probability of Default and LGD Estimation

    PRA proposed, via the consultation paper CP21/19, an approach to implementing EBA’s recent regulatory products relating to Probability of Default (PD) estimation, Loss Given Default (LGD) estimation, and the treatment of defaulted exposures in the internal ratings-based (IRB) approach to credit risk.

    September 18, 2019 WebPage Regulatory News
    News

    PRA Issues Consultation on Prudent Person Principle Under Solvency II

    PRA, via the consultation paper CP22/19, has set out its proposed expectations for investment by firms, in accordance with the Prudent Person Principle (PPP).

    September 18, 2019 WebPage Regulatory News
    News

    CFTC Extends Comment Period for Proposals on Cross-Border Clearing

    CFTC announced that it is extending, until November 18, 2019, the comment period for the proposal for an alternative compliance framework for derivatives clearing organizations (DCOs) that are organized outside of U.S. and that do not pose substantial risk to the U.S. financial system.

    September 18, 2019 WebPage Regulatory News
    News

    BNM Publishes Financial Stability Review for the First Half of 2019

    BNM published Financial Stability Review for the first half of 2019.

    September 18, 2019 WebPage Regulatory News
    News

    APRA Observations from Thematic Review on Recovery Plans of Insurers

    APRA issued a letter to general insurers and life insurers, outlining observations from a recent thematic review on recovery planning by insurers.

    September 18, 2019 WebPage Regulatory News
    News

    FASB Issues Summary of Tentative Board Decisions at September Meeting

    FASB published a summary of the tentative decisions taken at its Board meeting in September 2019.

    September 18, 2019 WebPage Regulatory News
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3848