July 14, 2017

IMF published its staff report and selected issues report in the context of the 2017 Article IV consultation with United Arab Emirates (UAE). The introduction of Basel III capital adequacy standards in March 2017 by the Central Bank of the United Arab Emirates (CBU) is one of the key focus areas of the staff report.

The staff report discusses the ongoing initiatives to upgrade the supervisory and regulatory framework for the financial sector. The introduction and implementation of the Basel III capital and liquidity standards, risk management regulations, corporate governance standards, and new financial products and services are keys to strengthening financial resilience while addressing market development needs.The authorities did not expect that any bank would need to raise additional capital to satisfy the new capital surcharges for systemically important banks. Implementation of the Basel III liquidity standards published in 2015 is ongoing. The liquidity coverage ratio (LCR) is being applied to the three largest banks at 80%, which is set to rise to 100% by 2019. The CBU is planning to develop additional guidance to banks on the implementation of liquidity regulations and strengthen offsite and onsite monitoring of liquidity requirements. To support the CBU’s ongoing efforts, swift approval of the draft Central Bank and Banking Law is essential to enhance central bank independence, strengthen macro-prudential framework, and bolster safety nets. The authorities noted that the draft law reflects best international practices and is being discussed within ministries.


Although banks are adjusting to slower economic growth amid persistently lower oil prices, they remain sound and liquid, with stable and fully provisioned nonperforming loans. However, loans to related parties and concentration risks remain high in some cases. While asset quality at Islamic banks is slightly weaker than at conventional banks, both are adequately capitalized. The CBU’s recent stress tests showed that, except for a few small and medium-sized banks, most of the 21 local banks considered in the exercise would keep capital above the 12% regulatory minimum in an adverse scenario. Two medium-sized banks had stressed LCR slightly below 100%. The authorities noted that differentiated loan-to-value and debt-to-income ratios, along with the requirements for minimum financing for developers put in place after the global financial crisis, limit risk from exposures of banks to real estate. More active liquidity management, as the CBU intends, along with the development of debt markets would promote healthy liquidity and credit conditions. The recently introduced Basel III liquidity requirements are expected to incentivize banks to manage their liquidity more actively. To this end, the development of debt markets would provide banks with new dirham-denominated instruments.


The selected issues report describes the key features of the UAE banking system and financial markets and reviews the CBU framework for managing liquidity. It also proposes steps for moving toward more active management of liquidity. The report discusses the need to upgrade the CBU’s liquidity management framework, along with further steps to develop domestic money and debt markets. More active management of system-wide liquidity, as is already being planned by the CBU, and streamlining the gamut of the CBU’s liquidity management instruments would encourage banks to manage their own liquidity better and develop money markets. These efforts would complement the implementation of the new Basel III-compliant liquidity requirements recently issued by the CBU. The report also highlights that capital market development has become even more important in the new “lower-for-longer” oil price environment to diversify sources of funding for governments and firms and to support economic growth and diversification. The CBU’s reforms could be usefully complemented by governments’ efforts to develop domestic debt markets, including for Islamic instruments.

 

Related Links

Staff Report (PDF)

Selected Issues Report (PDF)

Keywords: Middle East and Africa, United Arab Emirates, Banking, Article IV, Basel III, Islamic Finance, IMF

Related Articles
News

HKMA Revises Implementation Schedule for Initial Margin Rules

HKMA intends to adopt a revised implementation schedule for the margin requirements for non-centrally cleared derivatives.

August 16, 2019 WebPage Regulatory News
News

FASB Proposes to Extend CECL Standard Deadline for Certain Entities

FASB proposed an Accounting Standards Update that would grant private companies, not-for-profit organizations, and certain small public companies additional time to implement FASB standards on current expected credit losses (CECL), leases, and hedging.

August 15, 2019 WebPage Regulatory News
News

IASB Adds Phase Two of IBOR Reform to Its Work Plan

IASB (or the Board) has added the second phase of its project focused on potential financial reporting implications linked to the interest rate benchmark reform—interbank offer rate (IBOR) reform—to its work plan.

August 15, 2019 WebPage Regulatory News
News

FED Updates Draft Instructions for Proposed FR Y-14 Reporting Forms

FED updated draft instructions for the monthly, quarterly, and annual capital assessments and stress testing reports, also known as forms FR Y-14M, FR Y-14Q, FR Y-14A, respectively.

August 15, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirement for an Australian Insurer

APRA decided to apply an additional $250 million capital requirement to Allianz Australia Limited to reflect the issues identified in the risk governance self-assessment by the insurer.

August 14, 2019 WebPage Regulatory News
News

APRA Consults on Final Phase Margin Rules for Uncleared Derivatives

APRA is consulting on amendments to the prudential standard CPS 226 on margin and risk mitigation requirements for non-centrally cleared derivatives.

August 14, 2019 WebPage Regulatory News
News

BCBS FAQs on Implementation of Operational Risk Capital Requirements

BCBS published the first set of frequently asked questions (FAQs) to facilitate consistent global implementation of the standardized approach for operational risk capital.

August 14, 2019 WebPage Regulatory News
News

MAS Publishes Rules on Single Counterparty Credit Limits for Banks

MAS published Notice 656 on rules to measure and limit exposures to a single counterparty group for banks incorporated in Singapore.

August 14, 2019 WebPage Regulatory News
News

BoE Publishes Actual and Indicative MREL for Banks in UK

BoE published actual and indicative minimum requirements for own funds and eligible liabilities (MRELs) for UK banks and buildings societies that have bail-in or partial transfer resolution strategies.

August 14, 2019 WebPage Regulatory News
News

OSFI Sets Out Plans for Implementation of Insurance Contracts Standard

OSFI published a letter that provides an update on the milestones completed and the activities underway with respect to the implementation of the insurance contracts standard International Financial Reporting Standard (IFRS) 17.

August 13, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3638