UAE To Test Bank Execs’ Risk Management Ability

The United Arab Emirates central bank is preparing a test to determine whether senior executives in the country’s banks and financial institutions have enough expertise to handle risks.

“This test is focused on ensuring that such officers do have the required technical expertise, including expertise in risk assessment and risk management, which proved essential in the wake of the recent international financial crisis,” central bank governor Sultan Nasser al-Suweidi said in a speech posted on the central bank’s website.
The central bank has ordered commercial banks to seek its prior written approval for nominations to boards of directors, he noted.

“A sound board of directors governance would require the independence of the board of directors. This includes the absence of subordination of one member to another member, the absence of close family relationships between members and the absence of overlapping interest links,” Suweidi said.

“The existence of such links is likely to create dissenting blocs within the board. Soon, this gives rise to disagreements that will leak out to the staff and create alliances to the blocs within the board, thereby undermining the decision-taking process and weakening the institution.” The central bank issued rules on the operations of banks’ boards in 2000; it added rules to protect the rights of small investors in banks last year. Suweidi did not detail how the test for senior executives would work.
The 2008 global financial crisis exposed bank lending excesses in the oil-reliant UAE economy, bursting a property bubble and triggering a $25 billion debt restructuring of Dubai World in 2010.

However, most UAE banks have large capital cushions by international standards and they have been relatively unscathed by the euro zone debt crisis because they have only minor exposure to Europe.
Despite some recovery, bank lending remains sluggish in the UAE. Provisions against bad loans rose to a record 55.3 billion dirhams ($15.1 billion) in December, up 25 percent from a year ago, Reuters reported.

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