IMF reports on UAE financial system

29 January 2003
The IMF on 27 January released a report on the stability of the UAE financial system, concluding that the banking sector is strong and well-regulated, but that flaws in the supervisory structures of the insurance and securities sectors pose risks. The banking sector receives a good report: the IMF says that it is profitable, is improving its credit quality, and offers generally simple products to customers. As most assets are short-term and well-matched with liabilities, banks do not suffer from high levels of interest rate risk, and liquidity levels are ample. The Central Bank of the UAE imposes a strong supervisory regime, says the IMF. However, it is advised to enhance the supervision of conglomerates containing both banks and other financial institutions, by liaising with the appropriate regulators, and to establish a procedure for approving any stock-holdings of more than 5 per cent of shares.

Domestic securities markets, the IMF says, are small, underdeveloped and plagued by insider trading. The responsibilities of the various bodies with regulatory responsibility over the sector are blurred, and progress on implementation of the 2000 securities law has been slow. The insurance sector is likewise small due to the size of the population, an underdeveloped life insurance market, and state pension provision. The major UAE insurers are stable and well-capitalised, but supervision is weak.

On money-laundering, the authorities are credited with taking the matter seriously, but the UAE's position as a hub for the gold trade and money remittances, and high levels of trade, make it particularly vulnerable. The central bank is in the process of formalising anti-money-laundering regulations.

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