A Study on Liquidity Risk Management in UAE Banks

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The British University in Dubai (BUiD)
Following the global economic meltdown in late 2007, when many banks failed to meet their payments obligations and funds were drained out from depositors, many regulators started implementing liquidity risk management techniques more strictly through their central banks using the guidelines of the Bank for International Settlement (BIS), the international framework for liquidity risk measurement, standards, and monitoring. Such regulations are being enforced in all banks globally, restricting lending with the goal of a healthier financial environment. The UAE’s economic approach is aimed at moving from an emerging market economy to a developed economy; in order for that to happen, the UAE must work on strengthening confidence in its financial industry by following global banking guidelines through its central bank as well as the local and international banks operating within. This is evident by the UAE’s work at fulfilling the Basel III requirements, within which liquidity risk management is further enforced. Currently the UAE Central Bank is tightening lending rules for all banks, aiming to impose more control on lending and avoid any possible failures in the future that might necessitate the central bank to bail out banks operating locally; thus the banks’ risk management works to comply with the enhanced regulations. This research paper examines liquidity risk management in UAE Banks from an operational perspective in order to test whether banks are applying liquidity risk measurements and standards effectively. The test sample covers 8 UAE local banks by interviewing the banks’ risks managers through a questionnaire that focuses on the liquidity part of risk with qualitative and quantitative questions. The questionnaire is backed up by recent scholarly research in the area of liquidity risk in this part of the world. The research findings show some but not all evidence of applying the Basel III framework for liquidity risk, yet the framework requirements are not completely fulfilled.
liquidity risk management, UAE banks, United Arab Emirates (UAE), financial environment, Basel III