The UAE Central Bank issued the new liquid assets ratio requirement on 12 July, and posted it on its website yesterday.
In a statement, the Central Bank said that the requirement was temporary, and would be replaced on 1 Jan 2015 by a more complex "liquidity coverage ratio".
“Following consultation with banks operating in the UAE, and after reviewing international best practices in the area of liquidity risk management, and regulations, the Central Bank has decided to enact these regulations for controlling and monitoring of liquidity at banks,” the Central Bank statement said.
“All banks must abide by the provisions of these regulations and the accompanying manual at all times.”
It said the objective of the regulations was to ensure that the country’s lenders managed their liquidity risks adequately and “in line with the Basel Committee for Banking Supervision recommendations and international best practices”.
The UAE is said to have the largest banking market in the six-nation Gulf Cooperation Council bloc, with some 23 local banks 28 foreign entities licenced to operate there.
The UAE’s banking industry came under considerable pressure during the global financial crisis, beginning in 2008, as Dubai’s rocketing real estate industry suddenly crashed, and UAE banks were found to be highly-exposed to government debt.
Earlier this year, the Central Bank announced new guidelines covering how banks should go about lending to UAE government entities, and how large debt exposures to government entities should be monitored.
These guidelines, along with the new liquid assets ratio requirement, are seen as part of the UAE Central Bank’s ongoing effort to prevent a repeat of the problems Dubai banks in particular encountered during the height of the global financial crisis in 2009.
‘Banks responsible for own liquidity risk’
In its statement announcing the new liquid assets ratio requirement, the UAE Central Bank noted that UAE banks are “responsible for managing their liquidity risk in a prudent maner, using all available liquidity management tools at their disposal”.
“The bank’s board of directors bears ultimate responsibility for liquidity risk management within the bank,” it added.
“The bank’s board should clearly articulate liquidity risk tolerance for the bank, in line with the bank’s objectives, strategy and overall risk appetite.”
No more private meetings
In a separate circular aimed at the UAE lending institutions it regulates, the UAE Central Bank has announced that UAE financial institutions henceforth must not meet representatives of embassies and other diplomatic missions in the country, saying such meetings should only take place in the presence of a Central Bank representative.
In a circular, the Central Bank said those financial institutions interested in meeting with embassy or diplomatic staff must first contact its auditing department to arrange for such meetings, adding that the person to be contacted is Saleh Al Tinaij.
“You are asked not to hold separate meetings with representatives of diplomatic missions or their visiting delegations.
“Any such meetings must be arranged through the Central Bank,” the Central Bank said.
