Qualitative Assessment of Basel III Liquidity Standards and its Application in the UAE
Abstract
The Basel Committee for Banking and Supervision (BCBS) introduced two key liquidity ratios to strengthen the short- and long-term liquidity positions of the banks around the globe. These ratios were designed to achieve two key distinct objectives. Firstly, to encourage banks' short-term resilience to the liquidity risks by ensuring there are sufficient high-quality liquid assets to survive a significant stress which may last for 30 days. Calculation of this ratio is called as Liquidity Coverage Ratio (LCR). Secondly, to promote bank resilience over a longer time horizon, at least annually, by creating additional incentives for banks to fund their activities with more stable sources of funding. This led to creation of Net Stable Funding Ratio (NSFR). While these structural ratios are mostly quantitative, the underlying factors that are needed to calculate these ratios include qualitative factors as well. The paper analyzed the implementation of Basel III standards for the banking sector in the UAE. In particular, the timelines specified by the Central bank of the UAE and its implementation by the Domestic-Systemically Important Banks (D-SIBs) in the UAE was tracked by this paper. The study found a disconnect between the disclosure requirements by Basel III and disclosure made in the published annual financial statements of the banks. The study also discussed the extent of disclosures made by the D-SIBs and how relevant disclosures may improve the transparency of the liquidity risk management of the bank.
JEL Classification Codes: E58, G32, G38.
References
BCBS, J. (2008). Principles for Sound Liquidity Risk Management and Supervision
BCBS, J. (2015). Basel III Net Stable Funding Ratio disclosure standards
BCBS, J. (2014). Basel III leverage ratio framework and disclosure requirements.
CBFSR. (2018). Central Bank Financial Stability Report 2018. Retrieved from https://centralbank.ae/sites/default/files/2019-07/FSR-Report-2018.pdf
CBUAE. (2015). Central Bank of the UAE Regulation Re Liquidity at Banks, UAE, 2015. Retrieved from https://centralbank.ae/sites/default/files/2018-12/Liquidity%20regulation.pdf
Chen, Y. K., Shen, C. H., Kao, L., & Yeh, C. Y. (2018). Bank liquidity risk and performance. Review of Pacific Basin Financial Markets and Policies, 21(01), 1850007.
Chung, K. H., Elder, J., & Kim, J. C. (2010). Corporate governance and liquidity. Journal of Financial and Quantitative Analysis, 45(2), 265-291.
Gompers, P., Ishii, J., & Metrick, A. (2003). Corporate governance and equity prices. The quarterly journal of economics, 118(1), 107-156.
Kapur, M. (2020a). Performance of Conventional and Islamic Banks in the UAE: A Comparative Graphical Ratio Analysis.
Kapur, M. (2020b). An Empirical Study into Comparing Conventional and Islamic Banks in the UAE. International Journal of Accounting & Finance Review, 5(2), 11-31. https://doi.org/10.46281/ijafr.v5i2.716
Kumar, M., & Yadav, G. C. (2013). Liquidity risk management in bank: a conceptual framework. AIMA journal of management & research, 7(2), 2-12.
Lai, C., & Tuosto, R. (2016). Contingency Funding Planning. Liquidity Risk Management: A Practitioner's Perspective.
Singh, A., & Sharma, A. K. (2016). An empirical analysis of macroeconomic and bank-specific factors affecting liquidity of Indian banks. Future Business Journal, 2(1), 40-53.
Vento, G. A., & La Ganga, P. (2009). Bank liquidity risk management and supervision: which lessons from recent market turmoil. Journal of Money, Investment and Banking, 10(10), 78-125.
Wellink, N. (2011). Basel III and beyond. High Level Meeting on Better Supervision and Better Banking in a Post-crisis Era. (1-5), FSI and EMEAP Working Group on Banking Supervision (hosted by Bank Negara Malaysia), Kuala Lumpur, Malaysia.
Annual Financial Statement of the Domestic-Systemically Important Banks in the UAE
First Abu Dhabi Bank (FAB), 2018
Emirates NBD (ENBD), 2018
Abu Dhabi Commercial Bank (ADCB), 2018
Dubai Islamic Bank (DIB), 2018
Copyright (c) 2020 Manoj Kapur, Arindam Banerjee, Kunjana Malik
This work is licensed under a Creative Commons Attribution 4.0 International License.
