The UAE's central bank will tighten regulations on how banks in the Gulf Arab state manage liquidity so they can better cope with future crises, a central bank circular seen by Reuters showed on Tuesday.
Lenders in the world's No.3 crude exporter will be required to comply with qualitative, quantitative and reporting requirements on liquidity risk management, effective from September, according to the circular sent to banks.
"The aim of this liquidity regulation is to reduce the frequency and severity of banks' liquidity problems," the circular said.
"This is achieved by ensuring banks have a robust risk liquidity management and governance process and they are holding sufficient liquid assets to withstand a liquidity stress," it said.
UAE banks remain hesitant to lend following Dubai's debt woes and weakness in the property sector, although deposits stand at their highest level in more than two years at least as the country enjoys safe-haven status amid unrest in other parts of the region.
In its circular, the central bank urged banks to be responsible for managing their liquidity risks, pinning the overall responsibility on the board of directors.
Banks will also be required to comply with a liquidity coverage ratio covering a 30-day stress scenario for both bank specific and market wide stresses.
They also must have stable funding to fund the assets on their balance sheets and will be required to send a monthly liquidity report to the central bank under the new rules.
Central Bank governor Sultan Nasser al-Suweidi told UAE bankers this week to cut rates on loans as liquidity had improved.
"We believe it (new rules) will help to close the disparity between interbank and customer rates," said Stephen Jordan, general manager for liquidity management and interest rate products at National Bank of Abu Dhabi.
UAE private sector credit rose 2 percent year-on-year in February for a second monthly rise in a row following at least 13 consecutive months of declines. At the height of the oil and property boom in 2008 private sector credit was growing more than 50 percent from a year earlier.