According to Price Waterhouse Cooper’s ‘Banking Banana Skins 2014’ survey, new regulations are becoming excessive and could dampen economic recovery and growth. The poll is based on responses from more than 650 bankers, banking regulators and close observers of the banking industry in 59 countries.
The UAE banking sector to face stringent capital and liquidity rules. The Financial Stability Report hints at regulatory overhaul to align local regulations with international best practice. The Central Bank of UAE is in the process of reviewing and updating banking sector regulations to align local regulations with international best practice, according to the Financial Stability Report published by the apex bank on Sunday. The review will take into account specific requirements of the UAE economy. The report said the changes will require banks to hold capital in line with the requirements of Basel III rules, a set of international capital adequacy standards.
“New regulations aim to strengthen our prudential framework in line with the latest international developments and Basel III guidelines,” said Sultan Bin Nasser Al Suwaidi, Governor of the UAE Central Bank in the preface of the report.
Over the next few years, the regulatory reforms introduced by the Basel Committee for Banking Supervision under the Basel III framework, will significantly influence the development of the capital and liquidity regulations for banks operating in the UAE.
The new regulatory reforms are expected to impact both the quality and quantity of available regulatory capital at banks and the introduction of a new liquidity regime in the UAE. The new capital regime will include requirements for enhanced capital in terms of quality and quantity and the application of a new leverage ratio. The definition of capital will also change with a higher emphasis on paid-up capital, retained earnings and disclosed reserves.
In accordance with Basel III, the timeframe for full implementation of the new capital regime is end of 2018. The Central Bank said it intends to begin the engagement process with banks towards implementing the new capital regime, including consultation on the new regulations, in the second half of 2014.
Liquidity
The Central Bank Central Bank is currently in the process of finalising new liquidity regulations for banks operating in the country. The regulations emphasise the need for each bank to have a proper liquidity risk management framework in place to minimise the likelihood of a liquidity stress occurring and also minimise the impact on the bank should such a stress occur.
In developing such a framework, the Central Bank will require each bank to hold sufficient liquid assets that are of the highest quality to ensure that they will be able to meet their individual liquidity needs on an on-going basis — especially in a stress scenario.
The regulations will take into account national discretions outlined in the Basel III liquidity standards and the timescales for implementation of the Liquidity Coverage Ratio (LCR).
These regulations are expected in the second half of 2014 and the Central Bank intends to engage closely with all banks to ensure a smooth implementation of the LCR in the UAE.
