UAE banks told to conduct stress tests: report

UAE authorities have told the country’s banks to conduct regular tests of their clients to ensure they are in a good financial position and avert a fresh bad debt problem in the second largest Arab economy, press reports said on Monday.

The central bank said such tests are part of an emergency strategy that should be devised by the country’s 23 national banks and 28 foreign units in their lending activities as this will allow them to better manage their liquidity, the Sharjah-based Arabic language daily Alkhaleej said.

“The central bank has made mandatory to all banks to chalk out a strategy or an emergency plan that will ensure an effective diversification of their resources in their lending operations,” the paper said, citing unnamed sources.

“The central bank also requested the banks to conduct periodic tests of market risks and the borrowing institutions and other clients so they will extend loans to establishments which record growth and improvement in their activities and to traders and businessmen with good credit reputation……the central bank affirmed that this policy will support the domestic economy.”

The paper said UAE banks, which control the largest assets base in the Arab region, were also told to draw up an emergency plan to offset any liquidity shortages in collaboration with the central bank.

“The central bank stressed that this plan and the periodic tests of market risks must be carried out in coordination with the central bank.”

The paper quoted banking sources as saying many local banks had recently conducted stress tests which showed their liquidity and portfolios are strong.