Interview: Mubarak Rashed Al Mansoori
Given a lower oil price and an appreciating US dollar, what challenges have emerged, and how is monetary policy being adjusted as a result?
MUBARAK RASHED AL MANSOORI: While these factors have had an impact on the domestic economy, the effect has been relatively subdued. The build-up of large fiscal buffers over recent years, in addition to a well capitalised banking sector and sufficient albeit tightening liquidity, have reduced the potential impacts of such negative external shocks, so little has emerged in terms of challenges for the central bank in meeting its objectives. Nonetheless, it continues to actively monitor developments in the banking sector – and in the domestic and global economies – so as to better anticipate and respond to any future risks as they arise. The key objective of the UAE’s monetary policy is to maintain the fixed peg against the US dollar. To that end, the central bank maintains considerable international reserves, well in excess of the monetary base. A further goal is to remain ready to provide banks with liquidity support if needed.
How is strategy being developed regarding liquidity management as a means to support banks and ensure the credit cycle is well aligned?
AL MANSOORI: The UAE’s banking system remains resilient. Critical statistics demonstrate that banks operating in the UAE are maintaining high capitalisation, stable funding and sufficient liquidity. The capital adequacy ratio of banks remains well above the regulatory requirements set by the central bank (12% and 8%, respectively). In recent years, the central bank has sought to strengthen its liquidity management framework, particularly with respect to the development of facilities designed to inject liquidity during periods of market stress. This follows the central bank’s experience and lessons learned during the 2008-09 global financial crisis, as well as the experience of other central banks through the same period.
To that end, the central bank implemented a discount window in April 2014, known as the Interim Marginal Lending Facility (IMLF). The IMLF provides banks with access to short-term dirham funding by pledging eligible securities as collateral. More recently, the central bank introduced an Islamic equivalent, known as the Collateralised Murabaha Facility, to ensure Islamic banks were on an equal footing with conventional banks in this regard. The central bank will continue to strengthen its liquidity management framework so as to support banks and maintain sustainable credit growth.
What is being done to advance Islamic banking’s development? Are Islamic banks well placed to help small and medium-sized enterprises (SMEs)?
AL MANSOORI: Islamic banks comprise a very important subsector of the UAE banking industry. As of the third quarter of 2015 Islamic banks’ share of total banking assets was 18.7%, while their total market share of bank loans and advances was 22%. With respect to development, work is in progress to establish a Sharia Board to ensure a level playing field and uniform guidelines that govern Islamic banking operations throughout the UAE.
We at the central bank are confident that the model of risk sharing at Islamic banks is well suited to mobilising additional lending from this sector in support of the development of SMEs. The central bank organised a workshop on the promotion of SMEs and we intend to work closely with the recently established SME Council, which represents public as well as private entities, and whose mandate is to implement the National Programme for SMEs endorsed by the Cabinet in June 2014, towards the implementation of Federal Law No. 2 of 2014. These efforts aim to find appropriate solutions to risks that have limited SMEs’ access to bank credit and to raise SMEs’ share of bank lending so they can further contribute to growth.
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