Implementing Basel II: an investigation of the UAE banks' Basel II preparations

Purpose – This study aims at exploring the UAE banks' Basel II preparations. It is essential for the UAE banks to make adequate preparations to ensure their compliance with international standards and practices in the field of banking. Design/methodology/approach – The author developed a modified version of the Ernst & Young questionnaire to examine the UAE banks' Basel II preparations. Five hypotheses have been formulated and tested. Findings – Based on the results of the analysis in this study, it is concluded that the UAE banks are ready for the implementation of Basel II. This conclusion is supported by the fact that the UAE banks have sufficient resources for the implementation of Basel II, which represents a prerequisite for the implementation. The readiness of the UAE banks for implementing Basel II is also supported by the common understanding of Basel II by the employees of the UAE banks and the satisfactory level of education on Basel II. The results also indicate that there is no difference between UAE national and foreign banks in their readiness for the implementation of Basel II, which gives a positive impression about the competitive advantage of the national banks. Finally, the results support the importance of training and education on Basel II as one of the requirements of the implementation. Practical implications – Improving the level of education on Basel II is still needed and this can be achieved because of the availability of the required resources and the awareness of the UAE banks of the benefits, the positive impact, and the challenges of the implementation of Basel II, as indicated by the results. The results also support the importance of training and education on Basel II as one of the requirements of the implementation. Originality/value – The paper is important for the decision makers of the UAE banks and the regulators as the main objective of the study is to increase their awareness of the implementation of Basel II. The results would help the UAE banks to know the level of their Basel II preparations and what are the necessary steps that should be taken in this regard. The results would also help the regulators regarding the required steps that should be taken by the UAE Central Bank in order to motivate or encourage the UAE banks in implementing Basel II properly.Banks, Regulation, Risk management, United Arab Emirates

Multiple approaches in performance assessment of UAE commercial banks

Purpose – The purpose of this paper is to assess performance factors in the UAE commercial banks by using multiple approaches taking into consideration the effect of the bank size. Design/methodology/approach – The UAE banking sector is divided, for the purpose of this research, into two groups: large and small based on the total assets. The last balance sheet has been used for size classification; those with total assets of AED10 billion and above are considered large banks, whereas banks with total assets less than AED10 billion are considered small banks. This classification criteria led to a sample of 15 large and 23 small banks. The number of banks included in this study is only 38 banks due to the scarcity of available information. Data for the study cover the period from 1996 to 2005. Findings – The main findings of this study indicate that generally large banks perform better than small banks. The results partially confirmed the hypothesis that there is a positive and significant statistical difference between the small and large banks regarding bank performance indicators. Finally, the results reveal that the ratio of total equity to total assets, which reflect the importance of capital adequacy to commercial banks, is the most important performance indicator taking into account the bank size. In other words, it was the determinative factor in the classification of banks into large or small ones. Practical implications – The paper's findings support the proposition that in an environment where banks are highly fragmented, mostly small, and are not performing well, there is a need to consolidate the operations of some of these banks. That is, small banks, and even large ones, might be better off, if they are merged into one major institution in order to reduce waste and improve efficiency. Originality/value – The paper will be of value to UAE banks and those interested in investment in the UAE financial markets.Banks, Organizational performance, United Arab Emirates

Banks' risk management: a comparison study of UAE national and foreign banks

Purpose – The purpose of this research is to examine the degree to which the UAE banks use risk management practices and techniques in dealing with different types of risk. The secondary objective is to compare risk management practices between the two sets of banks. Design/methodology/approach – The authors developed a modified questionnaire, divided into two parts. The first part covers six aspects: understanding risk and risk management; risk identification; risk assessment and analysis; risk monitoring; risk management practices; and credit risk analysis. This part includes 43 closed-ended questions based on an interval scale. The second part consists of two closed-ended questions based on an ordinal scale dealing with two topics: methods of risk identification, and risks facing the sample banks. Findings – This study found that the three most important types of risk facing the UAE commercial banks are foreign exchange risk, followed by credit risk, then operating risk. It also found that the UAE banks are somewhat efficient in managing risk, and risk identification and risk assessment and analysis are the most influencing variables in risk management practices. Finally, the results indicate that there is a significant difference between the UAE national and foreign banks in the practice of risk assessment and analysis, and in risk monitoring and controlling. Originality/value – The article will be of value to those interested in the banking industry.Banks, Credit management, Foreign exchange, Risk analysis, Risk management, United Arab Emirates

Readiness of the UAE banks for the implementation of Basel III

The objective of this study is to investigate the UAE banks readiness for Basel III implementation. It is crucial for the UAE banks to have good preparation to make sure their compliance with international standards and practices in the banking sector. The authors developed a modified questionnaire based on a survey conducted by the Bank for International Settlements (BIS) in 2013 on Basel III implementation. In addition, Quantifi and Ernst & Young Survey (2013) were used in this study. The study attempted to answer four questions and test three hypotheses about the UAE banks implementation of Basel III. The results indicate that the UAE banks were aware of the benefits of the implementation of Basel III; the UAE banks employees were well educated about Basel III and they were ready for the implementation of Basel III as they have the required resources and trained managers. In addition, the regression results indicate that the most important factor of Basel III implementation is the availability of the needed resources

Credit default risk in Islamic and conventional banks: Evidence from a GARCH option pricing model

An important question in banking is whether restrictions placed on Islamic banks make them more resilient to financial market turmoil and less prone to failure than conventional banks. We evaluate this claim by estimating credit default risk measures for a sample of conventional and Islamic banks using a GARCH option pricing model. Using a daily data set that is better suited for the time variation in volatility, we calculate distance to default measures to evaluate credit risk of Conventional Banks (CBs) and Islamic banks (IBs). We find higher default risk measures for IBs than CBs in general except during the Global Financial Crisis. This result holds true after controlling for bank and country specific variables in that IBs seem to have significantly lower default risk during the Global Financial Crisis and higher default risk thereafter. Consequently, while restrictions on risk taking is advantageous in financial turmoil episodes, the same restrictions expose IBs to risks in normal times. Finally, the credit risk of CBs and IBs is negatively affected by the oil crisis in 2014-2015 and the Covid-19 global pandemic. While there is no significant difference between the effects of the oil crisis on IBs versus CBs, the recent Covid-19 pandemic seems to have worsened the credit risk of IBs compared to CBs. (c) 2022 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.University of Sharjah, United Arab EmiratesFinancial support from the University of Sharjah, United Arab Emirates is gratefully acknowledged