Managing Liquidity Risk is Crucial for UAE Banks Say Global Risk Professionals
Global Association of Risk Professionals hosts Dubai forum. Forum hosted by GARP and FRSGlobal in partnership with Emcredit. Banks’ collective actions in addressing liquidity risk highlighted as vital.
Dubai, United Arab Emirates, April 22, 2009 --(PR.com)-- Leading experts from the global financial risk management industry have cited that reining in liquidity risk is crucial to the long term stability of UAE banks. At a forum titled “Liquidity Risk Management in UAE,” held in Dubai on April 15, 2009, critical financial issues were examined regarding risks that arose from the changes in global economic conditions and its impact on the UAE.
The forum, organised by the Global Association for Risk Professionals (GARP) and FRSGlobal, a Belgium-based provider of enterprise-wide risk management solutions, was hosted in partnership with Emcredit, the UAE government-backed credit bureau. This high-level roundtable was attended by over 15 financial and technological risk experts, and the sessions were moderated by Dr. Nasser Saidi, Chief Economist, DIFC, and Jaydev Iyer, Managing Director of GARP.
Dr. Saidi pointed out that the ongoing credit crisis gripping banks and financial institutions happened despite stringent liquidity norms laid down by Basel and in spite of regulation by domestic central banks. “Such a scenario has prompted the need for new liquidity management norms – both internally and industry-wide. Banks need to internally have effective and good governance and risk management practices as well as transparency, and checks and balances so that any aberrations in liquidity risk management are visible immediately to management for prompt action. Central banks need to develop a framework for system wide liquidity management, focusing on institutions that can impact systemic risk.
GARP is a not-for-profit association consisting of over 85,000 individuals around the world who are involved in financial risk management. As a centre of excellence for the financial risk management community, GARP sets global standards through world-class training and certification for risk professionals.
“Globally, the credit crisis has resulted in a number of risk-related challenges for banks, including liquidity risk. Hosting this forum at this timely juncture will support UAE banks in addressing some of these critical issues and identifying solutions,” said Ali Ibrahim, Managing Director at Emcredit. “credit reporting and information sharing have always been integral to the risk management function of banks, on one hand helping banks better differentiate default risks and in turn balancing risk appetite with capital, and on the other hand improving risk reporting which establishes transparency, a key element in building confidence in the market today.”
Dr. Sunil Kumar, Head of Risk Management Middle East for FRSGlobal emphasized that banks’ collective actions from banks should be differentiated from their individual efforts in managing liquidity. He highlighted that selling illiquid assets or hoarding liquidity, if practiced by all banks at the same time, can have a negative impact on systemic liquidity. The need of the hour is to adopt advanced tools and systems for managing Liquidity Risk, he adds.
Horst Simon, Co-Regional Director of GARP, Dubai, UAE Chapter commented that the banking industry used “old tools” to manage new and innovative products and stressed the importance of new thinking and re-tooling for the future, an important aspect for developers of Risk Technology Systems.
Jaidev Iyer of GARP emphasized the growing recognition of liquidity risk as a key element in market crisis. Liquidity risk may be the "white space connecting market risk to credit risk", he said. Traditional risk tools and measures have yet to fully take into account the importance of liquidity assumptions and risks in the overall risk management framework, he said.
“Sami Farhat, GM Invest Bank who believes in pure banking rather than shadow banking comments that the 5 C’s of credit are the self prescribed therapies, most crucial in all circumstances: Character, Capacity, Capital, Collateral, and Conditions. The consumer finance and mortgage finance products are fads and the basic product structures are flawed. Mortgage finance absorbs a lot of liquidity, which is funded from short term deposits and artificial liquidity via securitization, which should be in check and bankers should adhere to the basics of banking”.
Prasant Sarkar, a senior banker in the region provided recommendations on managing liquidity risks: “The liquidity regime of our economy should ensure financial institutions to maintain sufficient liquidity resources in both amount and quality. Banks should avoid waiting for outside support at all times by having prudent risk management and liquidity assets buffer. Liquidity risks should be stressed for longer periods because it is a reality now faced by the Gulf banks that liquidity failures do take a protracted period to correct itself.”
Broadening of customer base, establishing strong interbank relations were some of the remedial measures suggested by Pravin Kandhari, Chief Risk Officer at Dubai Bank.
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The forum, organised by the Global Association for Risk Professionals (GARP) and FRSGlobal, a Belgium-based provider of enterprise-wide risk management solutions, was hosted in partnership with Emcredit, the UAE government-backed credit bureau. This high-level roundtable was attended by over 15 financial and technological risk experts, and the sessions were moderated by Dr. Nasser Saidi, Chief Economist, DIFC, and Jaydev Iyer, Managing Director of GARP.
Dr. Saidi pointed out that the ongoing credit crisis gripping banks and financial institutions happened despite stringent liquidity norms laid down by Basel and in spite of regulation by domestic central banks. “Such a scenario has prompted the need for new liquidity management norms – both internally and industry-wide. Banks need to internally have effective and good governance and risk management practices as well as transparency, and checks and balances so that any aberrations in liquidity risk management are visible immediately to management for prompt action. Central banks need to develop a framework for system wide liquidity management, focusing on institutions that can impact systemic risk.
GARP is a not-for-profit association consisting of over 85,000 individuals around the world who are involved in financial risk management. As a centre of excellence for the financial risk management community, GARP sets global standards through world-class training and certification for risk professionals.
“Globally, the credit crisis has resulted in a number of risk-related challenges for banks, including liquidity risk. Hosting this forum at this timely juncture will support UAE banks in addressing some of these critical issues and identifying solutions,” said Ali Ibrahim, Managing Director at Emcredit. “credit reporting and information sharing have always been integral to the risk management function of banks, on one hand helping banks better differentiate default risks and in turn balancing risk appetite with capital, and on the other hand improving risk reporting which establishes transparency, a key element in building confidence in the market today.”
Dr. Sunil Kumar, Head of Risk Management Middle East for FRSGlobal emphasized that banks’ collective actions from banks should be differentiated from their individual efforts in managing liquidity. He highlighted that selling illiquid assets or hoarding liquidity, if practiced by all banks at the same time, can have a negative impact on systemic liquidity. The need of the hour is to adopt advanced tools and systems for managing Liquidity Risk, he adds.
Horst Simon, Co-Regional Director of GARP, Dubai, UAE Chapter commented that the banking industry used “old tools” to manage new and innovative products and stressed the importance of new thinking and re-tooling for the future, an important aspect for developers of Risk Technology Systems.
Jaidev Iyer of GARP emphasized the growing recognition of liquidity risk as a key element in market crisis. Liquidity risk may be the "white space connecting market risk to credit risk", he said. Traditional risk tools and measures have yet to fully take into account the importance of liquidity assumptions and risks in the overall risk management framework, he said.
“Sami Farhat, GM Invest Bank who believes in pure banking rather than shadow banking comments that the 5 C’s of credit are the self prescribed therapies, most crucial in all circumstances: Character, Capacity, Capital, Collateral, and Conditions. The consumer finance and mortgage finance products are fads and the basic product structures are flawed. Mortgage finance absorbs a lot of liquidity, which is funded from short term deposits and artificial liquidity via securitization, which should be in check and bankers should adhere to the basics of banking”.
Prasant Sarkar, a senior banker in the region provided recommendations on managing liquidity risks: “The liquidity regime of our economy should ensure financial institutions to maintain sufficient liquidity resources in both amount and quality. Banks should avoid waiting for outside support at all times by having prudent risk management and liquidity assets buffer. Liquidity risks should be stressed for longer periods because it is a reality now faced by the Gulf banks that liquidity failures do take a protracted period to correct itself.”
Broadening of customer base, establishing strong interbank relations were some of the remedial measures suggested by Pravin Kandhari, Chief Risk Officer at Dubai Bank.
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Contact
FRSGlobal
Sunil Kumar
+971 (0) 4 313 23 18
www.frsglobal.com
Sunil Kumar
+971 (0) 4 313 23 18
www.frsglobal.com
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