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WP/16/98
Macroprudential Policy and Financial
Stability in the Arab Region
by Ananthakrishnan Prasad, Heba Abdel Monem, and Pilar Garcia Martinez
© 2016 International Monetary Fund WP/16/98
IMF Working Paper
Middle East and Central Asia Department
Macroprudential Policy and Financial Stability in the Arab Region
Prepared by Ananthakrishnan Prasad, Heba Abdel Monem, and Pilar Garia Martinez1
Authorized for distribution by Zeine Zeidane
May 2016
Abstract
Several characteristics of the structure of the Arab economies, their economic policy
framework, and their banking systems make macroprudential policy a particular relevant
tool. For most oil exporters, heavy reliance on the extractive sector for generating fiscal
revenues and export earnings translates into increased vulnerabilities to oil price shocks. In
the case of oil importers, relatively small external and fiscal buffers make them highly
vulnerable to shocks. This paper discusses the experience of Arab countries in implementing
macroprudential policies and contains recommendations to strengthen their macroprudential
framework.
JEL Classification Numbers: G28, E58
Keywords: Macroprudential policy, systemic risk, credit, financial stability
Author’s E-Mail Address: aprasad@imf.org; Heba.Ali@amf.org.ae;
pgarciamartinez@imf.org
1 This paper was jointly prepared by the staff of the International Monetary Fund and the Arab Monetary Fund
and presented to the Council of Central Banks and Monetary Agencies Governors on September 13, 2015, at
Cairo, Egypt. Helpful comments received from the Staff of Arab Monetary Fund, the supervisory heads of the
central banks and monetary agencies of Arab countries, and Monetary and Capital Markets Department,
Strategy and Policy Review Department, Research Department, and Middle East and Central Asia Department,
IMF are gratefully acknowledged. The authors thank Diana Kargbo-Sical for providing administrative support.
IMF Working Papers describe research in progress by the author(s) and are published to
elicit comments and to encourage debate. The views expressed in IMF Working Papers are
those of the author(s) and do not necessarily represent the views of the IMF, its Executive
Board, or IMF management.
2
Contents Page
Introduction ................................................................................................................................3
I. Why is Macroprudential Policy Important in the Arab Region? ............................................4
II. Institutional Framework for Macroprudential Policy..........................................................10
A. Mandate ...................................................................................................................10
B. Coordination ............................................................................................................12
III. Macroprudential Policy Tools: A Practical Approach .......................................................12
IV. How Arab Countries Have Implemented Macroprudential Policy....................................16
V. Towards A More Effective Macroprudential Policy Framework in the Arab Region ........21
Tables
1. Who Runs Macroprudential Policy? ....................................................................................11
2. Macroprudential Policy Toolkit ...........................................................................................13
3. Indicators Used to Identify When to Tighten and Ease Macroprudential Measures ...........15
Figures
1. Oil Dependency and Variability of Main Macro Variables ...................................................8
2. Oil Prices, Monetary Developments and Exchange Regimes ...............................................8
3. Arab Banking Sector Developments, Effects of the Global Financial Crisis, Measures
taken to Mitigate the Effects of the Crisis and Main Characteristics ....................................9
Boxes
1. Potential Vulnerabilities in Credit, Equity, and Real Estate Markets in Arab Countries ......7
2. Considerations for Institutional Framework ........................................................................11
Appendixes
I. The Financial Sector in the Arab Countries .........................................................................24
II. Macroprudential Policy Framework in Arab Countries ......................................................26
References ...............................................................................................................................55
3
INTRODUCTION
The global financial crisis not only triggered major changes to financial regulation, but
it also led to the recognition that financial stability is important to ensure
macroeconomic stability. The crisis highlighted the need for a better understanding of
macrofinancial linkages and underscored the importance of macroprudential policies, in
addition to microprudential regulation and supervision and strong fiscal and monetary policy
frameworks. Macroprudential policies aim to increase the overall resilience of the financial
system, contain the buildup of systemic risk over time, and address vulnerabilities stemming
from structural relationships between financial intermediaries.2
Several characteristics of the structure of the Arab economies, their economic policy
framework, and their banking systems make macroprudential policy a particularly
relevant tool. The importance of macroprudential policy to limit systemic risk in the
financial system is underlined by the high dependence of the Arab countries on hydrocarbon
revenues in fostering economic growth, which makes them especially vulnerable to swings in
global energy prices. Volatility in the hydrocarbon sector spills over to the rest of the
economy, amplified in many cases by the financial sector. The lack of ex ante crisis
management and resolution regimes would make a banking crisis even more difficult to
handle ex post.
For most oil exporters, heavy reliance on the extractive sector for generating fiscal
revenues and exports earnings also translates into increased vulnerability to oil price
shocks. In addition, their pegged exchange rate regimes and the consequent limited
independence of monetary policy places an additional premium on macroprudential policies.
In the case of oil importers, relatively small external and fiscal buffers make them highly
vulnerable to shocks. Macroprudential policy can help increase buffers to protect the
financial system from potential systemic risks. However, macroprudential policies cannot
serve as a substitute for sound fiscal policy and essential structural reforms—including
financial sector reforms— to attain macroeconomic stability.
Arab countries have made important strides toward strengthening the stability of their
financial systems. Since the global financial crisis, they have sharpened prudential
regulation by tightening capital and liquidity requirements and are in the process of
implementing Basel III standards on capital, liquidity, and leverage. A number of central
banks have established a separate financial stability office/unit and set up an early warning
system, in addition to conducting periodic stress testing of banks. Many countries in the Arab
region, particularly the GCC, were ahead of others around the world in implementing some
measures now widely accepted as macroprudential tools. These measures include the loan-to-
2 See IMF (2013c).
4
deposit ratio, regulations on personal lending such as debt service to income ratio and limits
on loan tenor, and limits on concentration, including on real estate exposure.
There is scope for the Arab countries to better understand, identify and mitigate
spillovers through the financial sector, and in particular to build up appropriate buffers
and limit excessive leveraging and credit booms in good times. Maintaining financial
stability requires flexible and adaptive macroprudential policies. A macroprudential policy
framework should ideally encompass: (i) a system of early warning indicators that signal
increased vulnerabilities to financial stability; (ii) a set of policy tools that can help contain
risks ex ante and address the increased vulnerabilities at an early stage, as well as help build
buffers to absorb shocks ex post;and (iii) an institutional framework that ensures the effective
identification of systemic risks and implementation of macroprudential policies.
The existing institutional arrangement in many Arab countries requires adjustments to
support an effective macroprudential policy function. Key improvements would
involve: (i) assigning a macroprudential policy mandate and a delineation of its powers;
(ii) establishing a financial stability coordination committee comprised of all financial system
regulators, including the capital markets authority, the insurance supervisor, and the Ministry
of Finance; (iii) ensuring appropriate accountability mechanisms; and (iv) elevating to a legal
requirement the exchange of information.
Strengthening the effectiveness of macroprudential tools requires improving the
availability of data. The recent global financial crisis in the advanced economies revealed
major gaps in the information available to the authorities to monitor systemic risks. In Arab
countries, there is room for enhancing data infrastructure and availability to allow for a more
complete assessment of systemic risks and a more comprehensive basis for selecting and
operating macroprudential tools.
I. WHY IS MACROPRUDENTIAL POLICY IMPORTANT IN THE ARAB REGION?
The Arab economies are heavily dependent on oil, which makes them especially
vulnerable to swings in global oil prices. Volatility in the hydrocarbon sector has a direct
impact on the rest of the economy, especially the financial sector. For most oil exporters, in
particular, there is a direct line between their heavy dependency on oil and less diversified
economies. Countries deeply dependent on the extractive sector for fiscal revenues and
export earnings are also much more exposed to shocks. In addition, the financial sector
operates as a shock amplifier as banks tend to have high US dollar and energy sector
exposure.
Most of the Arab oil-importing countries also suffer from high macroeconomic
volatility connected to sharp movements in oil prices. Small external and fiscal buffers
and in some cases weak policy frameworks, make oil importers highly vulnerable to shocks.
Foreign exchange reserves are low, and current account deficits remain substantial in many
countries. High or rising public debt levels are of concern, driven by persistently large fiscal
5
deficits. Even as countries are realizing the need for fiscal consolidation and strengthening
their fiscal frameworks, fiscal deficits are still high in most countries.
The pre- and post-global crisis period demonstrates the vulnerability of the region to
credit and asset price cycles. In the pre-crisis period, domestic liquidity in the region grew
by 24 percent in 2007 compared to 13.3 percent in 2003, while private sector credit growth of
banks recorded a substantial increase over this period—especially by 2007—to 29 percent.
When these factors reversed, they caused considerable stress to the financial system. The
growth of domestic liquidity in the region declined by 11 percentage points in 2009, and
private credit facilities slumped by more than 20 percentage points in the same year to
4.3 percent (Box.1).3
Monetary policy independence is constrained in most Arab oil-exporting countries due
to fixed exchange rate arrangements, despite the presence of capital controls in some
countries. Monetary operations are further constrained by relatively limited capabilities in
liquidity management as central banks’ liquidity management relies primarily on reserve
requirements and issuance of Certificates of Deposit (CDs) and T-Bills. In addition,
monetary operations are constrained by the absence of liquidity forecasting, the shallow
nature of money markets and financial markets, all of which limit the capacity to conduct
open market operations. Credit growth is characterized by a buildup of large exposures in oil-
related and real estate sectors (see Box 1).
Despite more flexible exchange rate regimes in some cases and thus greater
independence in monetary policy, some Arab oil-importing countries are also exposed
to global economic shocks, which exacerbate existing vulnerabilities. The transmission
occurs either through their increased level of sensitivity to external demand, which
contributes about one-third of their gross domestic product, or through oil prices which
heavily affect their fiscal and external balances in a context of small policy buffers.
Furthermore, bank liquidity strains may severely affect the provision of credit while
excessive concentration on some risky exposures like the real estate sector may contribute to
the building-up of systemic risks. Twin deficits have amplified during oil prices surges as in
2009–11, and moved in the opposite direction when oil price decreases (Figure 1).
Fiscal policy has been used as a first line of defense to offset shocks in both in oil-
exporters and importers, but with mixed results. Fiscal policy proved to be procyclical in
many Arab countries due to heavy reliance on hydrocarbon revenues in oil-exporting
countries and lack of automatic stabilizers in oil-importing countries. However, during the
global financial crisis, many countries resorted to countercyclical fiscal policy to offset the
effects of oil shocks on aggregate demand with substantial negative impact on fiscal and
external balances. Fiscal policy is not always flexible enough to prevent credit booms and the
3 Arab Monetary Fund, the Joint Arab Economic Report Database.
6
buildup of systemic risk in the financial sector due to implementation time lags and rigidities
in expenditure as a result of the significant share of wage and subsidies bill in total public
spending.
The global financial crisis showed that prudent monetary policy and strong
microprudential policy cannot by themselves ensure financial stability. Serious financial
imbalances were accumulating before the crisis due to excessive credit and exposure to risky
assets, even in a more stable macroeconomic environment characterized by low levels of
inflation and solid growth rates. Therefore, it became clear that the policies adopted prior to
the crisis were neither sufficient for containing systemic risks nor in ensuring the resilience
of the financial sector. Micro prudential policies, on the other hand, should focus on ensuring
the soundness of financial institutions at the individual level. However, the lack of ex ante
crisis management, and resolution regimes which do not provide a clear division of
responsibilities and burden sharing complicates even more a potential crisis scenario.
In sum, macroprudential policy has a key role to play to limit systemic risk. Given the
vulnerability of the region to credit and asset price cycles, the limited monetary policy
independence under the fixed exchange regimes in many oil exporters, and the absence of
fiscal buffers in oil importers, macroprudential policy also has an important role to play to
limit systemic risk in the financial system. However, macroprudential policy cannot be a
substitute for structural reforms—including financial sector reforms—needed to reduce
medium and long term vulnerabilities and imbalances.
This study assesses the current regulatory and institutional macroprudential
frameworks, identifies the macroprudential tool kit used in Arab countries, and traces
the progress achieved towards the implementation of Basel III standards.4 Information in this
study is based on survey conducted by the IMF and AMF with the regulatory and supervisory
departments of central banks. 5 The rest of the paper is structured in the following manner.
Section II discusses the institutional framework for macroprudential policy. Section III
discusses the role of macroprudential policy in achieving financial stability. A detailed
discussion on the experience of Arab countries in implementing macroprudential policies can
4 Arvai, Zsofia, Prasad Ananthakrishnan and Katayama Kentaro (2014) provide a framework for the GCC
countries.
5 The survey was sent to 19 countries. Responses were received from all except Djibouti, Mauritania, Yemen,
and Syria. Countries have been grouped in three. The first group comprises the GCC oil exporters, namely
Bahrain, Oman, Kuwait, Qatar, Saudi Arabia and the UAE. The second Group includes oil-importers, namely,
Egypt, Jordan, Lebanon, West Bank and Gaza, Morocco, Tunisia, and Sudan. Of these countries, both West
Bank and Gaza and Sudan have unique banking sector characteristics. The Palestine Monetary Authority
(PMA) is working under very tough and exceptional conditions to achieve sound and effective financial system,
which are mainly associated with the peculiarities of the Palestinian situation. Since 1983, Sudan has operated
under a purely Islamic banking system. The third group comprises non-GCC oil exporters, namely Iraq and
Libya with exacerbated geo-political challenges.
7
be found in Section IV. Finally, Section V contains recommendations to strengthen the
macroprudential framework in Arab countries.
Box 1. Potential Vulnerabilities in Credit, Equity, and Real Estate Markets in Arab Countries1/
The majority of the Arab world’s bank domestic credit is
concentrated in the private sector (except for Qatar, Algeria,
Yemen, and Lebanon which have a high percentage in the
public sector). Private sector credit distribution also varies
within the GCC and Arab oil importing countries. Bahrain,
Egypt, Morocco, and Tunisia have a high percentage of their
private credit for trade, industry, and finance sectors.
However, banks in the GCC countries and Mauritania have
a large share of the credit portfolio in personal consumption
loans. For many GCC banks’ credit is also concentrated in
the real estate sector. Furthermore, many GCC countries
face borrower concentration risk in their credit portfolio. For
instance, the five largest borrowers account for about seven
percent of the Omani banks’ total credit portfolio
(35 percent of capital), while the top 10 largest borrowers
represented about 109 percent of Tier 1 capital in Qatar at
end-2012. The 10–20 largest borrowers in three Kuwait
banks represented more than 18 percent of their gross loans,
advances.2,3 Their gross exposures are concentrated on
claims on corporates, sovereigns, and public entities.
Specifically their credit exposures are in sectors that are
ultimately dependent on oil. Many GCC banks are found not
to lend much outside of the Middle East. By international
standards, banks in GCC countries have sizable capital
buffers considering the concentration risks they currently
face in their credit portfolios.
Equity market values to GDP ratios are generally below
100 percent in the Arab region. GCC countries, for instance,
have a market cap to GDP ratio of above 50 percent with
Qatar exceeding 80 percent in 2014. Oil-importing Arab
countries further vary with the size of their equity markets;
some like Jordan and Morocco exceeded 50 percent of
market cap to GDP, while the ratios of Lebanon and Egypt
are well below 50 percent.
Although the availability of information on the real estate
sector in the Arab world is scarce, few available indicators
(such as credit to real estate and construction to total credit)
point to a relatively significant size of the real estate sector in
oil-importing countries. All available information for Arab
countries’ banks point to exposures in the threshold of
20 percent of their total credit to real estate and construction
sectors. Some GCC countries have constructed housing price
indices that clearly indicate a surge in their real estate prices
(e.g., Qatar). The real estate price trends seem more subdued
in Arab oil importing counties. By looking at other available indicators—such as the trading volume of real estate stocks for
Jordan and its real estate price index—steady growth is evident.
__________________________
Prepared by: Hania Qassis, IMF
1/ Arab Countries Central Banks’, Annual and Financial stability reports and IMF’s article IV reports for each respective country.
2/ Based on IMF paper for the Annual Meeting of Ministers of Finance and Central Bank Governors; “Assessing Concentration Risk”;
October 25, 2014.
3/ Information on concentration of Banks in non GCC countries was not available.
-10
10
30
50
70
90
110
Bahrain
Oman
Qatar
Saudi Arabia
Libya
Algeria
Yemen
Egypt
Lebanon
Tunisia
Jordan
GCC
Non GCC
Oil Importing Countries
Distribution of Domestic Credit in some Arab Countries, 2014 /1
Public
Private
1/ 2013for Jordan, Tunisia and Yemen. September 2014 for Algeria and Libya.
0
10
20
30
40
50
60
70
80
90
100
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
Algeria
Jordan
Morrocco
Egypt
Lebanon
GCC
Non GCC
Oil Importing Countries
Size of Equity Market in Arab Countries, 2014
Market Capitalization to GDP
0
5
10
15
20
25
Bahrain
Kuwait
Qatar
Jordan
Morrocco
Mauritania
Tunisia
GCC
Oil Importing Countries
Real Estate and Construction Credit to Total Credit, 2014 /1
Real Estate and Construction Cred it to Total Credit
1/ 2013 for Jordan, Tunisia and Kuwait. June 2013 for Mauritania.
8
Figure 1. Oil Dependency and Variability of Main Macro Variables
Figure 2. Oil Prices, Monetary Developments and Exchange Regimes
Saudi Arabia
Iraq
UAE
Kuwait
Qatar
Libya
Algeria
Oman
Yemen
Bahrain
Sudan
Tunisia
0
20
40
60
80
100
0
10
20
30
40
50
60
70
80
90
100
010 20 30 40 50 60 70
Hydrocarbo n Expor ts/Total Exports
Hydrocarbon GDP/Total GDP
Diversification Among Oil Exporters
(Percent)
More Diversified
Less Diversified
50
60
70
80
90
100
110
120
-10.0
-5.0
0.0
5.0
10.0
15.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Average Overall Fiscal Balance for Oil Exporters
versus Importers, 2006-14
(Percent of GDP)
Oil Exporters, Average General Gov. Overall Fisc al
Balance
Oil Importers, Average General Gov. Overall Fiscal
Balance
Oil price (RHS)
40
50
60
70
80
90
100
110
15
20
25
30
35
40
2006
2007
2008
2009
2010
2011
2012
2013
2014
Gross Government Debt
(Percent of GDP)
Oil Exporters, Average General Gov. Gross Debt
Oil Importers, Average General Gov. Gros s Debt
Oil price (RHS)
0
20
40
60
80
100
120
-16
-14
-12
-10
-8
-6
-4
-2
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Average Current Accou nt Balance
(Percent of GDP)
Oil Importers Average CAB
Oil price (RHS)
Oil Exporters Average CAB
Source: IMF staff calculations
40
50
60
70
80
90
100
110
0
200
400
600
800
1000
1200
1400
2006
2007
2008
2009
2010
2011
2012
2013
2014
Reserves
(USD billion)
Exporters reserves (USD billion)
Importers Reser ves (USD billion)
Oil price (RHS)
0
20
40
60
80
100
120
140
0
50
100
150
200
250
300
350
400
2006
2007
2008
2009
2010
2011
2012
2013
2014
Regional Equities Markets and Oil Price, 20 06-2014
(Jan. 2006=100)
Saudi Equities
Egypt Equities
Jordan Equities
Tunisia Equities
Morocco Equities
Oil price (RHS)
60
65
70
75
80
85
90
95
100
105
110
0%
5%
10%
15%
20%
25%
30%
35%
2006
2007
2008
2009
2010
2011
2012
2013
Credit Growth for Oil Exporters and Importers
Oil Exporters Credit Growth
Oil Importers Credit Growth
Oil price (RHS)
Source: IMF calculations, Bloomberg
9
Figure 3. Arab Banking Sector Developments, Effects of the Global Financial Crisis, Measures
taken to Mitigate the Effects of the Crisis and Main Characteristics
Effects Of the Global Financial Crisis on GCC Countries
Growth of Non-Oil GDP, Liquidity and Private Credit
Private Sector Credit to GDP
(1990–2010) %
Arab Monetary Fund, (2010). “The Consequences of the Global Financial Crisis on
Arab Countries”, The Joint Arab Economic Report: Thematic Chapter.
(1990-
1999)
(2000-
2010)
First Group (GCC countries)
35.58
48.62
Second Group (Oil-importing
countries)
41.37
51.45
Third Group (Other oil-exporting
countries)
12.71
10.00
Source: Arab Monetary Fund, “ The Joint Arab Econo mic Report” Database.
Change in Credit to Private Sector: Second Group
Financial Soundness Indicators: First Group
Arab Monetary Fund, (2010). “The Consequences of the Global Financial Crisis on
Arab Countries”, The Joint Arab Economic Report: Thematic C hapter.
Arab Monetary Fund, (2010). “ The Consequences of the Global Financial
Crisis on Arab Countries”, The Joint Arab Economic Report: Thematic
Chapter.
Interventions to Increase the Resilience of the Banking Sectors and
Mitigate the Effects of the Crisis: Second Group
Interventions to Enahnce the Resilience of the Banking
Sectors and Mitigate the Effects of the Crisis: First Group
Arab Monetary Fund, (2010). “The Consequences of the Global Financial Crisis on
Arab Countries”, The Joint Arab Economic Report: Thematic C hapter.
Arab Monetary Fund, (2010). “The Consequences of the Global Financial
Crisis on Arab Countries”, The Joint Arab Economic Report: Thematic
Chapter.
Levels of Banking Sector Competition According to
H-Statistics
* Approaching 1 means increasing levels of competition.
Anzoátegui, D. et al. (2010). “Bank Competition in the Middle East and Northern
Africa Region”, Review of Middle East Economics and Finance, Vol. 6, No. 2
Dominance of Public Banks With A High Level of Credit
to Public Sector Associated in Some Arab Counrties
Source: Arab Monetary Fund, “ The Joint Arab Economic Report” Database.
0.0
0.2
0.4
0.6
0.8
1.0
1994-2001
2002-2008
10
II. INSTITUTIONAL FRAMEWORK FOR MACROPRUDENTIAL POLICY6
A. Mandate
A strong institutional framework is crucial for ensuring that the authorities can use
macroprudential tools effectively.7 The framework needs to ensure a so-called ability and
willingness to act while fostering adequate coordination across different sectors and policies.
In particular, the macroprudential authority should be guarded from political and industry
pressures to delay action, while providing an adequate system of checks and balances to
avoid using macroprudential policy beyond its call of duty (see Box 2). The necessary
coordination mechanisms should be in place to facilitate information sharing and policy
cooperation, while preserving the autonomy of separate policy functions.
In practice, different models can be identified in Arab countries depending on who has
the mandate for macroprudential policies (Table 1):8 (i) there is no explicit financial
stability mandate legally assigned to any institution (Kuwait, and Libya); (ii) different
agencies ensure different aspects of financial stability but there is no coordination between
them (the UAE); (iii) the financial stability mandate is shared by multiple agencies including
the central bank, which chairs the coordination body (Morocco); (iv) the central bank, or a
committee of the central bank, is the sole owner of the mandate (Saudi Arabia, Bahrain,
Oman, Jordan, Iraq, Qatar, Lebanon, Tunisia, and Egypt). The central bank, in a majority of
countries, plays an important role.
There is no one-size fits all model but most Arab countries would benefit from
strenghtening their institutional setting. In particular, for most countries, greater clarity on
the mandate, instruments and functions of the institutions involved together with a
transparent accountability framework would reinforce the capactiy and willingness of those
institutions to act.
As part of the implementation of the financial stability objective, some countries have
established a separate financial stability office within the central bank. Central banks in
all Group 1 countries (GCC) have set up separate financial stability offices and publish
financial stability reports. In Group 2, Lebanon has recently established a financial stability
unit within the central bank and a department within the banking control commission to
monitor the systemic risk in the banking sector, and a financial stability committee chaired
by the vice governor of the central bank, together with members of the banking control
commission, the financial stability unit, and representatives from other departments in the
central bank.
6 This section draws heavily on IMF work on the subject.
7 For more details see Staff Guidance Note on Macroprudential Policy, IMF (2014).
8 Lim, C. and others (2013b).
11
Box 2. Considerations for Institutional Framework
An explicit mandate assigning clear roles and responsibilities to the relevant agencies with powers to decide—
while remaining accountable—should be clearly defined in the law. A rules-based approach helps to overcome the
inaction bias or avoid extra limitations in the use of the tools, but some discretion may be needed to enable the
authorities to respond to changing conditions in financial sectors as sources of systemic risks evolve. Guided discretion
should be accompanied by clear communication based on the systemic monitoring of various key indicators combined
with expert judgment. Clear communication and transparency creates public awareness of risks and an understanding of
the need for action. An adequate accountability arrangement involves two elements: an internal system of checks and
balances, complemented by the scrutiny of external third parties (e.g. parliament, public opinion). Transparency should
also involve the publication of an overall strategy, motivation for policy decisions, and the periodic assessment of
effectiveness and costs.
There is no one-size fits all.1 No institutional model is without weaknesses and each has different strengths. Different
institutional arrangements are shaped by country-specific circumstances, such as historical events, legal traditions,
resource availability, and the size and complexity of the financial markets. A variety of frameworks exists depending
on the degree of integration between the main building blocks and the structure of coordination across policies. Nier et
al. (2011) identify five key distinguishing dimensions for different arrangements: (i) the degree of institutional
integration between central bank and financial regulatory and supervisory functions; (ii) the ownership of the
macroprudential mandate; (iii) the role of the government in macroprudential policy; (iv) the degree to which there is
organizational separation of decision making and control over instruments; and (v) whether or not there is a
coordination committee that while not itself charged with the macroprudential mandate, helps coordinate several
bodies. The need for coordination is especially important since macroprudential policies interact with other policies.
While there are advantages and disadvantages to any model, some general lessons can be translated into basic guidance.
The macroprudential mandate should be assigned by law to an authority with clear objectives and
accountability.
The central bank should play an important role in macroprudential policy. However, its independence and
credibility should not be undermined.
Complex and fragmented regulatory and supervisory structures are unlikely to lead to the effective mitigation
of risks to the system as a whole. Formal coordination mechanisms across institutions and policies are needed.
Participation by the Ministry of Finance is useful, but if the ministry plays a dominant role, that may pose
important risks.
Systemic risk prevention and crisis management are different policy functions that should be supported by
separate arrangements.
_____________________
Source: This box is based on information in Nier, Erland, W and others (2011).
1 See Arvai, Zsofia Prasad Ananthakrishnan and Katayama Kentaro (2014) for more details.
Table 1. Who Runs Macroprudential Policy?
Who Is Runs Macroprudential Policy?
Countries
No Formal Macroprudential Policy Mandate in the Law
Kuwait, Libya
Different Agencies Without Formal Coordination
UAE
Different Agencies With a Coordination Committee
Morocco
Central Bank is the Macroprudential Authority
Saudi Arabia, Bahrain, Oman, Jordan,
Iraq, Qatar, Lebanon, Tunisia, and Egypt
Source: Authors’ calculations from survey of 12 countries
12
B. Coordination
The need for coordination arises because macroprudential policy, inevitably, interacts
with other policies. Coordination is especially important when formal authority over tools
for specific systemic risks rests with bodies other than macroprudential authorities, such as in
the case of Morocco. Nonetheless, coordination should respect the autonomy of the different
bodies in achieving their primary responsibilities. Coordination helps exploit
complementarities with micro prudential, fiscal, monetary, and structural policies.
The current regulatory structure for most Arab countries depends on informal
mechanism for coordination and information sharing. Some countries, including Kuwait,
Oman, Qatar, Saudi Arabia and the UAE have established authorities to regulate capital
market institutions and investments. Although the central bank is the de facto single
integrated regulator of the financial market, capital markets are regulated and supervised by
the capital market authority. In the UAE, there are multiple regulators.9 Qatar has established
a formal structure for coordination among the regulatory bodies through the financial
stability and risk control committee. The recently established Higher Committee on Financial
Stability in Oman is headed by the Executive President of the central bank and includes other
regulatory bodies—plus the Ministry of Finance—as members. Morocco has amended laws
governing the supervisors for insurance, pensions, and capital markets in order to strengthen
their respective independence. These new institutions will become fully operational with the
appointment of their respective management bodies.
III. MACROPRUDENTIAL POLICY TOOLS: A PRACTICAL APPROACH
A successful macroprudential policy framework should closely monitor systemic risks
in time varying and cross-sectional (structural) dimensions. Supervisory authorities
should monitor and evaluate financial imbalances and procyclical financial activities over
time. They must also give due attention to the cross-sectional (across the firms) systemic
risks that emerge from the interconnectedness of the financial institutions, common exposure,
and high risk concentration.10
There are many classifications for macroprudential instruments according to their
dimensions, purpose of use, and the financial variables they are targeting.
Macroprudential policy measures could be classified into five major groups according to the
source of systemic risk.11 Credit booms can be addressed by measures that influence all credit
9 The central bank regulates the banking system and the exchange houses. Of the three stock exchanges in the
country, the Dubai Financial Market and the Abu Dhabi Securities exchange are both governed, and regulated,
by the Securities and Commodities Authority. The third, NASDAQ Dubai, located in the Dubai International
Financial Center, is governed by an independent regulator (the Dubai Financial Services Authority). The
insurance sector is regulated by the insurance authority.
10 Caruana, J. and Cohen, B. (2014).
11 International Monetary Fund (IMF), (2014). “Staff Guidance Note on Macroprudential Policy”, Dec.
13
exposures of the banking system. These measures include, for instance, countercyclical
capital buffers (CCBs), dynamic loan loss provision requirement, and leverage ratio. These
measures are also called broad based macroprudential tools as they affect all the credit
exposure of the banking system.12 On the other hand, household sector vulnerabilities can be
contained through a range of sectoral tools that target specific credit categories such as
sectoral capital requirements (risk weights), loan-to-value (LTV), and debt-service-to-income
(DSTI) ratios. Financial vulnerabilities arising from increasing corporate leverage can be
addressed using sectoral capital requirements (risk weights) and exposure caps, in addition to
other measures such as LTV limits. Systemic liquidity and currency risks can be contained
through liquidity buffer requirements, stable funding requirements, liquidity charges, reserve
requirements, constraints on open FX position, and constraints on FX funding. Structural
risks can be addressed through capital and liquidity surcharges for systemically important
institutions, measures to control interlinkages in funding and derivatives, and exposure limits.
(Table 2).
Table 2. Macroprudential Policy Toolkit
Time Varying MaPP tools:
Liquidity
Reserve requirement ratio
Limits on open FX positions
Liquidity requirements
Loans to deposits ratio
Margins/haircuts on collateral financial transactions
Capital:
Countercyclical capital buffer
Time varying / dynamics loan loss provisioning
leverage ratio
Sector Specific measures:
Sector specific capital buffer
LTV ratio
DSTI ratio
Others
Limits on domestic loans
Limits on foreign currency loans
Structural dimension MaPP tools:
Interconnectedness
Capital surcharge on SIFIs
Limits on interbank exposure
Concentration limits
Source: International Monetary Fund (2013), “Global Macroprudential Policy Instruments Survey”
12 International Monetary Fund, (2014). “Staff Guidance Note on Macroprudential Policy-Detailed Guidance on
Instruments, Nov.
14
Macroprudential measures had been widely used in emerging market economies long
before the crisis. The macroprudential tool most frequently used by regulatory authorities is
loan to value ratio for both advanced and emerging economies.13 More specifically, advanced
economies tend to use LTV, DSTI ratios, while emerging economies prefer LTV, limits on
foreign currency lending, and limits on credit growth.14 Generally, housing measures have
been the key focus of MaPP interventions in many different jurisdictions.
Regulatory authorities should continuously trace all relevant information to identify the
proper macroprudential policy stance. Regulators are encouraged to make use of all
available and relevant indicators to identify when to tighten, or ease, their macroprudential
stance (Table 3). Therefore, if policy makers discover market participants to be excessively
risk-averse, they can intervene to restore confidence in the market, and vice versa. The
regulatory authority’s discretion is also important for determining whether systemic risks are
the result of an accumulation of financial imbalances, or merely the result of reasons
completely unrelated to the financial sector. For instance, higher levels of private credit to
GDP could be linked either to financial development or as a result of some economic plans
aimed at fostering economic growth. Also, housing price asset bubbles could be associated in
some countries to a shortage in the supply of housing units, rather than excessive real estate
loans.
13 Bank for International Settlements (BIS), (2010). “Macroprudential Instruments and Frameworks: a Stock -
Taking of Issues and Experiences (A report of a Working Group chaired by Lex Hoogduin). CGFS
Papers No 38.
14 Claessens et. Al. (2014). “Macroprudential Policies to Mitigate Financial System Vulnerabilities”. IMF
working paper 14/155
15
Table 3. Indicators Used to Identify When to Tighten and Ease Macroprudential Measures
Indicators used to define when to tighten macroprudential policy
Indicators used to define when to
ease macroprudential policy
Instruments
Core indicators
Additional indicators
Additional indicators
Broad-based
(Capital) tools
Credit/GDP gap
Growth in credit/GDP
Credit growth
Asset price deviations from
long-term trends
Under-pricing of risk in financial
markets (low volatility/spreads)
DSTI ratios
Leverage on individual loans or
at the asset level
Increasing wholesale funding
ratio (noncore funding)
Weakening exports and resulting
current account deficits
High frequency indicators of
balance sheet stress, such as
increases in bank credit default
swap (CDS) spreads.
Increases in lending rates/ spreads.
Slowing credit growth.
Increasing default rates and
nonperforming loans
(NPLs)/arrears.
Indication of worsening credit
supply from lending surveys.
Household tools
Household loan growth
Increasing house prices
(nominal and real
growth)
House price-to-rent and
house price-to-
disposable income ratio
Increasing share of
household loans to total
credit
Increasing house prices by region
and by types of properties
Deteriorating lending standards
High LTV ratio
High loan-to-income (LTI) ratio
High DSTI ratio
Share of FX loans and interest
only loans
Decreasing house prices
Decreasing real estate transactions
Increasing spreads on household
loans
Decreasing prices of mortgage
backed securities
Slowing net household loan growth
(change in stock)
Slowing growth of new household
loans (flow)
Increasing household NPLs/arrears
Corporate tools
Corporate loan growth
Increasing share of
corporate loans to total
credit
Increasing commercial
property prices
Increasing commercial
real estate credit.
Increasing share of FX
loans
Increasing corporate leverage
(debt to equity ratio)
Corporate credit gap
Increasing debt-service ratio
Deteriorating lending standards
Average DSTIs on commercial
real estate loans
Average LTVs on commercial
real estate loans
Share of FX loans and extent of
natural hedges
High frequency indicators, e.g.,
corporate CDS spreads, bond yields
Increases in lending rates/spreads
Decreasing corporate loan growth;
Increasing corporate default
rates/NPLs/arrears
Indication of worsening credit
supply from lending surveys.
Liquidity tools
Increasing loan-to-
deposit (LTD) ratio
Increasing share of
noncore funding to total
liabilities
Decreasing share of liquid assets
Worsening maturity mismatches
Increasing securities issuance
Increasing unsecured funding
Increasing FX positions
Increasing gross capital inflows
Increasing spread between interbank
rate and policy/swap rate
Increasing funding costs in the
wholesale market
Increased recourse to central bank
liquidity windows
Swap rate of local currency against
FX and FX implied volatility
Reversal of gross capital inflows.
16
IV. HOW ARAB COUNTRIES HAVE IMPLEMENTED MACROPRUDENTIAL POLICY
This section reviews the macroprudential tools Arab countries have been using. The
discussion is structured using the three-group classification specified earlier. The Annexes
provide an overview of the major macroprudential instruments, the institutional structure,
and progress in the implementation of Basel III standards used in individual countries that
responded to the survey.
GCC central banks have been using several macroprudential instruments over many
years to mitigate against exposures to real estate and personal loans, and group
concentration risks. GCC countries implemented a number of macroprudential tools before
the global financial crisis, particularly in order to contain retail lending. However, these
measures often came late in the credit boom.
Capital, provisioning, and liquidity requirements for banks. Most of the GCC
countries have established a fixed ratio for general provisions, but none have dynamic or
countercyclical measures, except Saudi Arabia, where banks are required to maintain a
provisioning ratio of 100 percent of nonperforming loans (NPLs), a requirement raised to
as high as 200 percent at the peak of the economic cycle. In Kuwait, Oman, Qatar, and
the UAE, the general provisioning ratio was adjusted upward after the crisis. In addition,
in Kuwait precautionary provisions are applied since 2008. Other requirements for
banks—such as those forbank deposit reserves and liquidity levels—have been
commonly used in the region.
Basel III regulations. Basel III capital regulations have been implemented in all the
GCC countries except in the UAE. The framework for domestic systemically important
baks (DSIBs) has been implemented in Bahrain, Kuwait, Oman, Saudi, and Qatar. The
framework is expected to be finalized in the near-term in the UAE. With regard to
liquidity regulations, the liquidity coverage ratio has been introduced in all the GCC
countries except the UAE, the same with regard to leverage ratio.
Ceilings on personal loans. Personal lending regulation assumes macroprudential
significance because of its high share in total lending and the moral hazard related to the
debt-bailout expectations of nationals.15 DSTI ratios are commonly used in the region,
except in Oman and Kuwait. In Kuwait the applicable DSTI is 40 percent. Most countries
have imposed a cap on monthly repayments as a share of the monthly salary of the
borrower. This limit ranges from between 33 percent (Saudi Arabia) and 50 percent
(Bahrain, Qatar, and the UAE). While the UAE has set a ceiling on the total amount of
15 The United Arab Emirates set up an AED10bn (USD2.7bn) debt settlement fund to clear the defaulted debts
of its citizens in 2011, but to date there has only been limited utilization.
17
personal loans, Oman has no such ceiling. Qatar has imposed a differential ceiling on
individual loans to nationals and expatriates. The use of LTV ratios on mortgages is still
uncommon, although the UAE has implemented a ceiling on LTV ratios. Only Qatar and
Saudi Arabia have taken explicit measures, while business practices in other countries
have resulted in the ratio being around 80 percent.
Loan-to-deposit ratios: GCC countries have been ahead of many other countries in
imposing LTD ratios. Ceilings on credits for banks, such as LTD ratios, are common in
the region, with the range of ratios varying from 60 percent in Bahrain to more than
100 percent in Qatar. The only exception is the UAE, where there is a related regulation
prohibiting loans that exceed stable resources as percent of bank’s capital. These ratios
helped contain liquidity risk and the reliance on wholesale funding. However, constant
LTD ratios failed to sufficiently slow credit growth in the run-up to the crisis: the deposit
base was expanding due to high liquidity in the system (the average annual real growth in
credit to the private sector in the GCC ranged from between 17 percent for Oman to
35 percent for Qatar during 2003–08). A gradual tightening of LTDs might have
contributed more effectively to limiting credit growth, though it would not have
prevented the kind of exuberant foreign borrowing observed in the UAE prior to 2008.
Limits on real estate exposures. Such limits were in place in GCC banking systems
even before the global crisis, but the definition of real estate in the regulations did not
adequately cover real estate–related lending and financing activities. As a result, banks’
actual exposure to the real estate sector turned out to be higher than suggested by the
regulatory caps. LTVs for real estate lending were generally not part of the
macroprudential toolkit prior to the crisis. Although mortgage lending is still only a small
share of residential real estate financing—which remains largely cash-based—LTVs for
real estate developers, where relevant, might have helped to stem the real estate boom. In
the aftermath of the crisis, LTVs are increasingly recognized in the GCC as potentially
useful instruments for containing banks’ exposure to the real estate sector. All countries
have some form of LTVs, except Bahrain.
The oil-importers group (Egypt, Jordan, Lebanon, West Bank and Gaza, Morocco,
Tunisia and Sudan) is characterized by high levels of banking concentration. Banks in
this group are more vulnerable to business cycle shocks due to the credit concentration in
some sectors that are highly sensitive to the economic cycle.16 Liquidity problems, credit
concentration and large sectoral exposures constitute the main risks that banks face within
16 For instance, tourism and personal loans constitute around 71 percent of total credit facilities in Tunisia.
18
this group.17 Most of these countries use different macroprudential instruments to manage
these risks.
Broad-based macroprudential tools. All the countries in this group have some form of
general provisioning requirements aimed at helping banks to establish a “safety cushion”
to strengthen resilience against risks. In Lebanon, banks are required to maintain a
minimum general provision of 1.5 percent of the retail loan portfolio, gradually phased
over 4 years beginning 2014. In addition, banks are required also to hold a general
reserve of 1.5 percent of corporate and SME loans over a four-year period and
3.5 percent of retail loans (excluding housing) over 7 years starting 2014. In West Bank
and Gaza, banks have to maintain a general provision of 1.5 percent of direct performing
loans and 0.5 percent of the off-balance sheet facilities. Sudan applies a general provision
of 1 percent of credit facilities. It is worth noting that, despite high levels of banks’
vulnerability to business cycle risks, none of these countries use time-varying loan loss
provisioning requirements.
Liquidity tools. A legal reserve requirement is a commonly used tool to mitigate
liquidity risks. In addition, liquidity ratios are imposed on banks, ranging from between
60 and 70 percent of the total short-term banking obligations. Moreover, limits on forex
currency positions and mismatches have been enforced within this group. In Egypt, long
and short positions in any single currency cannot exceed 1 percent and 10 percent,
respectively, of the capital base, and 2 percent and 20 percent, respectively, for all
currencies. In Jordan, they cannot exceed 15 percent for position in total currencies and
5 percent in individual currency, while in Lebanon there are limits of 1 percent of Tier 1
capital for net trading position and 40 percent of Tier 1 capital for global forex position.
Banks in Morocco are required to maintain their forex position under 20 percent of
capital for all currencies and 10 percent per currency, while in Tunisia there are two
limits on FX position: one in relation to net capital equity and another related to total loss
on a position. In West Bank and Gaza, open position of each currency should not exceed
5 percent of the bank's capital base and the aggregate total of short and long positions
should not exceed 20 percent of the bank's capital base for all currencies. In Sudan,
foreign exchange position should not exceed 20 percent of capital.
Basel III regulations. Basel III capital requirements have been enforced in Lebanon and
Morocco since 2014 for progressive implementation, respectively, by end-2015 and end-
2018, while frameworks required to enforce these regulations are expected to be finalized
17 The largest bank in Jordan owns 54 percent of the total banking assets, while the assets of the largest three
banks in Lebanon and Morocco constitute 50 and 66 percent of banking assets respectively. In Tunisia, large
and medium- sized banks hold 85 percent of the total assets. Public banks dominate the banking sector in some
of these countries with market share ranges 20 to 40 percent.
19
in the near-term in Jordan and Tunisia. Jordan, Lebanon, and Morocco are working on a
framework for introducing countercyclical capital buffers. Frameworks for DSIBs have
not been finalized by any of the countries in this group of countries.18 With regard to
liquidity regulations, the implementation of liquidity coverage ratio (LCR) is being
phased in in Morocco and Tunisia, while others have not implemented this standard. As
for leverage ratio, the framework has not been finalized in any of these countries.
However, in Lebanon, the central bank is monitoring this variable on a semi-annual basis
and expects to set a minimum leverage ratio for banks in 2015. The Central Bank of
Egypt is completing Pillar 2 of Basel II regulations, and is on track to implement Basel
III regulations according to the internationally agreed timeline.
Ceilings on personal loans. Personal loans constitute a high proportion of banking assets
portfolio in some countries in this group. For instance, credit to households constituted
about 40 percent of total credit in Jordan at end-2013 Limits on DSTI ratios have been
enforced in Lebanon (at 35 percent, and 45 percent if debt includes housing loans),
Tunisia (40 percent), and West Bank and Gaza (50 percent). Jordan, Lebanon, Tunisia,
and Sudan have introduced LTV ratio ranging from between 70 and 80 percent for
housing, car and mortgage loans. In West Bank and Gaza, the LTV ratio depends on
borrower's credit rating scores, ranging from 30 percent for the lowest graded borrowers
to 85 percent for the highest graded borrowers.
Limits on exposures. Single-borrower and country limits on bank exposures are
extensively used by countries in this group. In Lebanon, measures have been enforced to
limit exposure to single borrower, not exceeding 20 percent of Tier 1 capital. Other
exposure limits include country-limits not exceeding 50 percent of Tier 1 capital, and a
minimum BBB rating, and limits on non-resident bond issuances not exceeding
10 percent of Tier 1 capital. In Egypt, the single exposure limit is 20 percent of the
capital base and 25 percent for group exposure. In Tunisia, the total amount of incurred
risks should not exceed three times the net core funds of the lending institution. West
Bank and Gaza enforces between 10 percent and 25 percent of bank's capital base subject
to a prior approval from the PMA. Limits on real estate and foreign currency exposures
are uncommon in these countries. In Jordan, there is a maximum limit for real estate
exposure of 20 percent of the total deposits in local currency and a 30 percent limit for
foreign currency loans, which should only be used for exporting purposes. Sudan imposes
a 25 percent ceiling on direct finance and 25 percent on indirect finance. Related parties
have an added condition that their total finance must not exceed 10 percent of their
portfolio or 100 percent of their capital, whichever is lower. Limits on interbank
18 In Jordan, there is currently a committee working on issuing Basel III Instructions, while there are ongoing
studies in Morocco to define DSIBs.
20
exposures exist in Lebanon.19 None of the countries in this group use sector-specific
capital buffers. However, in Jordan, residential mortgage loans should have a preferential
risk weight of 35 percent in which the LTV does not exceed 80 percent, otherwise the
risk weight should be set at 100 percent. Also, concentration risk is the main component
in implementing the Internal Capital Adequacy Assessment Process (ICAAP) and many
banks in the preparation of the ICAAP document assign capital for specific sectors.
Loan-to-deposit ratios. The Central Bank of Egypt has imposed a guiding limit of
75 percent. Tunisia imposes a limit on domestic currency loans, while in Sudan, domestic
lending must not exceed the available domestic resources and foreign lending must not
exceed the available foreign resources.
The banking sector in the third group of Arab countries (Iraq and Libya) are
characterized by the dominance of public banks, high levels of liquid assets, low levels
of financial deepening (credit to GDP) and high levels of non-performing loans.20 The
focus of macroprudential measures in these two countries has been to enhance capital
adequacy ratios and to limit the risks of large exposure.
Broad-based macroprudential tools. Both countries rely on caps on credit growth to
contain banks’ total exposure. Since 2007, the Iraqi central bank has implemented a plan
to increase the capital base of the banking sector, mandating commercial banks to
increase their capital base to a minimum of US$215 million. However this plan
contributed only in increasing capital adequacy for private banks—which now account
for around 80 percent of the total capital base—while public banks’ capital base still
needs to be strengthened.
Liquidity tools. Given the excess liquidity in both countries, central banks have imposed
legal reserve requirements ranging from between 15 and 20 percent of total deposits.21
Liquidity buffers are imposed in both countries, ranging from between 25 and 30 percent
of the total short-term obligations.
Basel III regulations. There is no schedule for the implementation of Basel III
regulatory requirements in either Iraq or Libya.
19 As net credit exposure to unrelated foreign correspondents must not exceed 25 percent of Tier 1 capital. Also
banks and non-bank financial institutions are prohibited from lending and making placements with foreign
correspondents rated below BBB or unrated, expect for operational purposes. Limit on net placements with
related foreign banks and financial institutions should not exceed 25 percent of Tier 1 capital.
20 For instance, the assets of public banks accounts for 90 percent of the total assets in Libya.
21 Liquid assets constitute around 60 percent of total assets in Libya.
21
Ceilings on personal loans. There are no ceilings on personal loans in Libya, while in
Iraq, the DSTI ratio for those holding positions of leadership in banks must not exceed
50 percent of their annual incomes. Iraq also has in place an LTV ratio of 40 percent to
limit exposure to real estate loans.
Limits on exposure. In Libya, individual large exposures should not exceed 20 percent
of the bank capital base, and government entities are not allowed, by law, to borrow from
commercial banks. In Iraq, loans provided to “natural and moral persons”—including
public institutions—should not exceed 10 percent of bank capital and its total reserves.22
Sectoral exposure is capped at four times the level of capital and reserves, and interbank
lending is limited to 10 percent of capital and sound reserves.
Loan-to-deposit ratios. Total credit must not exceed 70 percent of deposits in both
countries.
V. TOWARDS A MORE EFFECTIVE MACROPRUDENTIAL POLICY FRAMEWORK IN THE
ARAB REGION
Despite the absence of formalized legal and institutional frameworks for financial
stability, Arab countries have a history of using several macroprudential instruments.
Certain macroprudential tools were already part of the regulatory toolkit before the global
financial crisis, the extent varying between country-groups. Macroprudential policy will have
to play an important role in this region to mitigate systemic risk in the financial sector. The
special characteristics of the Arab economies, reliance on volatile oil revenues, limited
monetary policy independence in light of the pegged exchange rates in some countries, the
lack of sophistication in operating instruments of monetary policy in others, and the risk of
procyclical fiscal policy pose challenges to the central bank for maintaining financial
stability.
There is scope for strengthening the macroprudential policy framework, refining the
toolkit, and developing the enabling market infrastructure for effective implementation
of macroprudential policy.
Strengthening the institutional framework. Based on the emerging international
experience, having a clear mandate for financial stability and strengthening interagency
coordination would better facilitate the use of macroprudential policy instruments to
address systemic risks. The mandate will strengthen the ability and willingness to act in
the presence of evolving systemic risks. A necessary element of such a framework would
also include an appropriate accountability mechanism to assess the efficacy of the
22 15 percent at maximum for person and his companies and relatives.
22
implementation. In the Arab region, central banks seem well placed to take a leading role
in ensuring financial stability, given their longstanding experience in monitoring and
managing financial risks.
Strengthening macroprudential instruments. Arab countries should focus on expanding
the range of macroprudential instruments and refining the existing instruments as needed.
Multiple macroprudential tools should be available in order to maximize their
effectiveness, while reducing leakages. In particular, countries should focus on
implementing Basel III regulations, CCBs, instruments targeting real estate risk, liquidity
tools, and instruments for dealing with DSIBs.
Strengthening the regulatory capacity to monitor and assess systemic risks. Arab
countries need to strengthen their capacities for monitoring time-varying, and cross-
sectoral, risks. Effective early warning systems and regular assessments of systemic risks
are integral parts of macroprudential policies. Macro stress testing would help the
regulators to align the macroprudential toolkit with the changing nature of financial risks.
Better monitoring of systemic risks and addressing financial vulnerabilities could be
achieved through several steps, including:
Developing a financial stability risk map. The regulatory authorities should work on
identifying systemic risks through, for example, “financial stability risk map.” This
map includes all the risk elements crucial for financial stability. These risks are
mainly related to macroeconomic performance, credit growth, financial activities, and
interconnectedness. In addition to market risk, the map would also identify liquidity
risk, contagion risk, real estate exposure risk and other risks related to linkages
between different components of the financial sector, structural indicators and
financial infrastructure.
Adopting of an Early Warning System (EWS). The macroprudential technical staff
should adopt an EWS, built on the analytical work, forecasting outputs and macro
stress testing results to identify the potential financial risks.
Establishing ex ante crisis management and resolution regimes with clear division of
responsibilites and burden sharing mechanisms.
Choosing tools. The authorities should focus on choosing macroprudential
instruments that are effective in preventing the buildup of systemic risks.
Communicating with the market. After choosing the adequate stance of
macroprudential policy, regulators should communicate their decisions to the market
at an appropriate time to ensure better understanding of the reasons behind tightening
or easing the macroprudential stance.
23
Continuous monitoring and updating of the risk map. Regulatory authorities should
work on monitoring the implementation of the macroprudential tools to align the
policy mix, according to the dynamic nature of financial activities.
Ensure effective policy coordination. Arab countries’ regulatory authorities should ensure
effective coordination between macroprudential and macroeconomic policies on the one
hand, and macro and microprudential policies, on the other. In this respect, there are
positive complementarities across policies but also negative spillovers that need to be
taken into account when quantifying the expected impact.
The urgent need to address the challenges related to Basel III implementation. While a
number of Arab countries are ahead in implementing Basel III requirements, others are in
the early stages of applying these standards. Further efforts are needed to enable Arab
countries to implement Basel III regulations. The Arab regulatory authorities should work
on addressing the challenges they are likely face to cope with the Basel III framework,
especially with regard to liquidity standards.
Sharing of cross-sectional country-experiences. This provision would bridge the gap in
macroprudential policy implementation across the region. There is no one-country fits all
solution, but regional experiences can provide good lessons of do’s and don’ts.
Other financial reforms. Such reforms, including developing domestic debt markets and
strengthening bank resolution frameworks, are needed to enhance the resilience of the
Arab banking sector and ensure financial stability. Macroprudential policies cannot
substitute for needed medium and long term structural reforms; in fact, macroprudential
policies are more effective in the context of well-working financial structures.
Strengthening corporate governance, financial disclosure, credit reporting systems, and
insolvency regimes would mitigate systemic risk and increase the resilience of Arab
banking sectors.
24
Appendix I
The Financial Sector in the Arab Countries
The financial sector in most Arab countries is mainly dominated by banking activities.
The banking sector constitutes about 54.2 percent of the total size of the Arab financial
sector, with the equity and bond markets contributing to about 33 percent and 12.8 percent,
respectively. Arab banking sector assets exceeded US$ 3 trillion by the end of 2013.1
The Arab banking sector has witnessed remarkable progress during the past three
decades. Reforms have aimed at liberalizing interest rate structures in varying degrees,
removing credit controls, strengthening the regulatory and legal framework and the
restructuring of banks. In addition, banking reforms included the privatization of some public
banks and opening the sector for foreign banks, for increasing competition and access to
finance. Credit bureaus and deposit insurance schemes have been established in some
countries. These reforms have reflected positively on banking sector activities and led to an
increase in banking assets, deposits, and profitability. Since 2000, reforms mainly focused on
enhancing banking supervision, increasing the level of compliance with international banking
regulatory requirements, ensuring the soundness of banking sectors and moving towards the
adoption of international standards in transparency and corporate governance.
Despite the reforms, the banking sectors in many Arab countries still face major
challenges that limit their potential growth. Public banks still dominate the banking sector
activities in some Arab countries, exceeding 70 percent of the share in certain countries.
Although this dominance enabled Arab countries to intervene to limit the consequences of
the financial crisis, it hinders competition and leads to an increasing level of credit facilities
to public sector, hence, crowding out private lending in some Arab countries (Figure. 3).
Enhancing sound competition is a key factor for improving intermediation and supporting
financial stability. Using the structural approach to assess bank competition by examining
measures of market structure such as concentration ratios (the share of assets held by the top
3-5 institutions) or indices (e.g., the Herfindhal index), reveals high levels of concentration in
some Arab banking sectors. Also, some studies concluded that banking sectors in the region
are best characterized as markets operating under “monopolistic competition” using a non-
structural approach. According to these studies, competition throughout the region has
declined—or has not changed significantly—from the second half of the 1990s to 2008.2 On
the contrary, it is noteworthy that some other Arab banking sectors remain highly
competitive. This is clearly reflected in the high levels of competition between local and
foreign banks and the low levels of interest rate margins. Another challenge facing the Arab
1 Arab Banking Union.
2 See Anzoátegui, D. et al. (2010).
25
banking sectors is the high level of credit concentration. Credit facilities in some Arab
jurisdictions are more concentrated in some risky assets, such as personal and real estate
loans, where the share of these loans exceeded 40 per cent of the total banking assets in a
number of Arab countries.
Box 3. Impact of the Global Financial Crisis on the Arab Banking System and Response
High global oil prices and the subsequent increase in oil revenues during the period (2003–08) led to a
surge in domestic liquidity in Arab oil exporting countries, especially in the GCC. The liquidity spread to
other oil-importing countries through the channels of capital inflows and workers’ remittances, which contributed
to a notable increase in banking credit to the private sector. The major part of this credit boom financed
consumption, real estate, and stocks-guaranteed loans, and triggered bubbles in asset prices. As a result, the Arab
banking sector was more vulnerable to the risk associated with the correction in asset prices, particularly in light
of the consequences of the global financial crisis.
The global crisis impacted negatively on economic activity and led to the burst of asset bubbles, causing a
sharp decline in domestic liquidity and private loans (Figure 3).1 Non-performing loans (NPLs) increased
significantly in countries most affected by the crisis. The banking sectors in the Arab oil-importing countries
were affected by such developments in a different way. High oil prices led to a widening of external and fiscal
deficits (due to energy subsidies) which caused drains on foreign reserves and volatility in the management of
treasury accounts, which, in turn, generated major banking liquidity deficits. Banking credit was also affected
because of supply (tight liquidity, higher risks) and demand (lower expectations). Nonetheless, the total effect
was relatively limited due to lower levels of openness with international financial markets, and as a result of
regulatory measures already adopted before the crisis limiting exposure to high-risk assets.
The response of Arab policy makers and banking regulatory authorities to the crisis was decisive. Policy
makers and banking regulatory authorities adopted a diversified set of measures to mitigate the impact of such a
crisis on their domestic economies in general and the banking sectors’ activities, in particular. In GCC countries,
these measures included imposing limits on loan-to-deposit ratios, ceilings on some private loans, increasing
non-performing loans provisions, buying the assets of some banks, supporting capital bases through injecting
liquidity among other measures (Figure. 3). Though some of these interventions were costly (for instance, the
cost of these policies constituted 8 percent of GDP in some GCC countries), they helped restore confidence in the
banking sectors and minimized the negative effects of the crisis. On the other hand, oil-importing countries
tended to ease monetary policy and avail access to central banks’ credit facilities, among other measures, to
weather the impact of the crisis (Figure. 3).2
The subsequent global banking regulatory reforms motivated the Arab regulatory authorities to move
forward on increasing banking sector resilience against potential internal or external shocks. During the
past four years, Arab banking regulatory authorities have focused on strengthening financial stability through
increasing capital adequacy, enhancing liquidity, limiting exposure to risky assets and implementing risk-based
supervision. Moreover, some Arab central banks have recently developed a framework and methodology to
identify DSIBs and deal with the risk associated with them, according to BIS methodology.
____________________
1 See Ali, H. (2013).
2 Arab Monetary Fund, (2010).
26
Appendix II
Macroprudential Policy Framework in Arab Countries
Macroprudential Toolkit: First Group
Macroprudential Measures KSA UAE QATAR BAHRAIN KUWAIT OMAN
General Provisions
Fixed level: 1.0 percent of total
loans and 100 percent of NPLs
Must represent 1.5 percent of
credit risk weighted assets.
Will be modified after we
implement Basel III
NO Min. 1.0 percent of net loans.
Fixed 1.0 percent of cash items
0.5 percent of non-cash Items
2.0 percent for retail loans, 1.0
percent on all other standard
loan, and 0.5 percent on loans
and advances to SMEs
Reserve Requirements on
Bank Deposits
7.0 percent on demand deposits
and 4.0 percent on time and
saving deposits.
14.0 percent on demand and
savings deposits. 1.0 percent on
time deposits. Effective tool to
compel banks to keep liquid
assets with the CB.
4.75 percent of total deposits.
5.0 percent of Bahraini Dinars
non-bank deposits, due at first
week of every month.
NO 5.0 percent of deposits.
Leverage Ratios (Capital to
Assets)
Deposit/(Capital + Reserve) not
to exceed 15 times. Basel III
Leverage ratio was introduced
since 2011.
NO 3.0 percent
3.0 percent as per Basel III
requirement will be
implemented in 2017. In the
meantime a 5.0 percent gearing
ratio continues to apply.
3.0 percent minimum, and
applicable from 31/12/2014.
NO
Ceiling on Credit or Credit
Growth
NO, However, SAMA closely
monitor credit growth in
general and credit to private
sector in particular.
NO NO NO NO
Ceiling on Personal Loans is
35.0 percent of total credit,
Housing Loans 15 of total
credit, Real Estate Loans 60.0
percent of higher of banks' net
worth or time and savings
deposits.
Limits on Loan-to-Deposit
(LTD) Ratios
85.0 percent
Lending to Stable Resources
ratio. Lending includes loans
plus Interbank lending more
than three months. Stable
Resources include Capital &
Reserves, Time Deposits, 85.0
percent of demand and savings
deposits, Interbank borrowings
more than 6 months.
90.0 percent (loan-to-seposit
ratio)
In the range of 60.0 percent to
65.0 percent on an individual
bank basis.
LTD ratio was replaced by a
maximum lending limit. The
limit is calculated by
multiplying the sources
(Deposits, interbank placements,
CD’s, medium and long-term
loans, issued bonds/ Sukūk) by
specific percentage based on the
maturity buckets. The allowed
lending percentages are as the
following:
(i) Remaining maturity up to 3
months: 75 percent;
(ii) remaining maturity more
than 3 months until one year: 90
percent;
(iii) remaining maturity more
than one year: 100 percent.
87.5 percent
27
Macroprudential Toolkit: First Group (continued)
Macroprudential Measures KSA UAE QATAR BAHRAIN KUWAIT OMAN
Liquidity Requirements
/Buffers
Liquid Assets to Deposits is at
least 20.0 percent.
NO
Liquidity coverage ratio to be
60 percent in 2014, increasing
by 10.0 percent each year and
reaching 100 percent by 2018.
Currently banks must meet
stock liquidity requirements (i.e.
25.0 percent liquid assets ratio).
18.0 percent of domestic
currency customer deposits.
YES
Limits on Real estate
Exposure
NO
Real Estate Exposure cannot
exceed 20.00 percent of the
funding. Funding includes all
customers deposits, capital
market funding and interbank
deposits. Effective tool to limit
over exposure to this sector.
Real estate finance should not
exceed 150.00 percent of the
bank's capital and reserves.
NO NO
Exposure 60.00 percent of
bank’s net worth or 60.00
percent of all time and saving
deposits other than government
and interbank deposits,
whichever is higher.
Limits on Other Sectoral
Exposure
NO NO
Ceiling for credit facilities at
20.00 percent and credit
facilities and investment at
25.00 percent of bank's capital
and reserves for single
customer. Credit facilities
granted by all banks to a single
borrower group should not
exceed QR 3bn.
NO
Lending to KSE Trading shares
should not exceed 10 percent of
total credit facilities portfolio
extended to the resident
customers, or 25 percent of the
bank's capital in its
comprehensive concept,
whatever is lower.
Limits on Interbank
Exposures
NO
Domestic Interbank exposures
over 1 year cannot exceed 30.0
percent of bank capital base.
Overseas Interbank are limited
to 30.0 percent of bank capital
base. Capital base is defined as
per Basel II.
25.0 percent of bank's capital
and reserves for Category I
banks and financial institutions,
10.0 percent for Category II
and 5.0 percent for Category
III.
NO NO
On overseas interbank
exposures, 'Limits are as under
for overseas interbank
exposures;
- Per party limit for lending to
bank is 5.0 percent of net worth
of the lending bank
- Aggregate limit is 30.0
percent of net worth (banks and
non- banks combined)
- Aggregate overseas exposure
(bank and non-bank including
lending, and placements) is
120.0 percent.
28
Macroprudential Toolkit: First Group (continued)
Macroprudential Measures KSA UAE QATAR BAHRAIN KUWAIT OMAN
Sector Specific Capital
Buffer/Requirement
NO NO NO NO
The following risk weights
apply:
1. SME’s 75.0 percent
2. Trading in Real Estate
Lending 150.0 percent
3. Trading in Share lending
150.0 percent.
SMEs - 75.0 percent
Loan-to-Value (LTVs) Ratios
70.0 percent for real estate
finance
For UAE nationals:
on first property (a) if property
value less than AED 5 M; 80.0
percent (b) if value more than
AED 5 M: 70.0 percent. On
subsequent properties :
maximum 65.0 percent
For expatriates:
on first property (a) if property
value less than AED 5 M: 75.00
percent (b) if value more than
AED 5 M: 65.00 percent. On
subsequent properties :
maximum 60 percent
Limits introduced recently.
70.0 percent for real estate
finance for salaried people and
60.0 percent for others.
NO
For undeveloped land purchase
50.0 percent , existing property
purchase 60.0 percent, 70.0
percent for construction use
only.
All of the above is only for
residential property only
On housing and vehicle loans,
Margin requirements of 20.0
percent on housing and vehicle
loans, which translates into
LTV of 80.0 percent
Debt/Loan-to-Income
(DTI/LTIs) Ratios
Total monthly repayments for
personal loans and credit cards
should not exceed 33.0 percent
of income (personal loans &
credit cards) and 25.0 percent
for retirees
Loan servicing can not exceed
50.0 percent of gross salary plus
any regular income. Effective
tool to prevent over
indebtedness
NO NO
Monthly installment limits
have been set, capping at
40.0 percent for employed
individual and 30.0 percent for a
retired individual.
50.0 percent of net salary for
personal loans other than
housing loan, 60.0 percent
including housing loan.
General Countercyclical
Capital Buffer/Requirement
NO. However, SAMA has
encouraged Saudi banks to
increase their capital buffer on a
countercyclical basis. Banks'
capital buffer rose by 100
percent during the period from
1992 to 1997 and by 250
percent during the period from
2003-2007.
NO
The details are currently being
worked out and will be
implemented from 2016.
NO
In times of excess credit
growth, banks will be subject to
a countercyclical buffer that
varies between 0 percent - 2.5
percent of the bank’s total risk-
weighted assets, that must be
met with CET1 form of capital.
In Process, Up to 2.5 percent of
Risk Weighted Assets, primary
guide Credit to GDP ratio,
Private Credit to Non-oil GDP
with a set of complementary
indicators.
29
Macroprudential Toolkit: First Group (concluded)
Macroprudential Measures KSA UAE QATAR BAHRAIN KUWAIT OMAN
Domestic Systemically
Important Banks Capital
Buffer
NO NO
The details are currently being
worked out and will be
implemented from 2016
D-SIB's are subject to more
frequent reporting and
inspection. The CBB is
evaluating the possibility of
requiring such banks to hold
more capital.
Banks identified as DSIBs will
be required to hold additional
capital buffers ranging from 0.5
percent to 2 percent in the form
of CET1. DSIBs charge will be
applied in 2016.
YES, Currently at 1 percent,
can be increased up to 2.5
percent
Limits on Domestic Currency
Loans
NO NO NO NO NO
For non-residents, lending to
non-residents in domestic
currency is prohibited.
Limits on Foreign Currency
Loans
NO, however SAMA approval
is needed.
NO
NO, Banks are advised to follow
prudential banking norms.
NO NO
For non-residents, lending to
non-residents in foreign
currency
Limits on open FX Currency
Position/Currency Mismatch
NO NO
The floor for ratio of foreign
currency assets to foreign
currency liabilities is fixed at
100 percent
NO
Each bank is given a limit
based on their individual profile
which is reviewed by the
Central Bank of Kuwait.
Forex Open Position 40.0
percent of capital and reserves
Limits on Maturity Mismatch NO NO NO
May not exceed 15.0 percent for
the “At sight” band or
20.0 percent for the “One
month” band
7 Days and under 10.0 percent
1 month and under 20.0 percent
3 months and under 30.0
percent
6 months and under 40.0
percent
For time buckets up to 1 year,
gaps of not more than 15.0
percent of cumulated liabilities
Limits on Exposure
Concentration (ex. Individual
Large Exposure, or
Government Entities as
percent of Total Capital)
Per party limit of 15.0 percent
of bank’s net worth
The legal limit is 25.0 percent
to be reduced to 15 percent by
2019.
Exposures include on and off
balance sheet items converted
using CCF. Individual Large
borrower: 25.0 percent of
capital base.. Government
entities exposure: 25.0 percent
individual limit and aggregate
limit 100 percent of capital base.
Capital base is calculated as per
Basel II.
Real estate finance should not
exceed 150.0 percent of the
bank's capital and reserves.
Ceiling for credit facilities at
20.0 percent and for credit
facilities and investment at 25.0
percent of bank's capital and
reserves for single customer.
Credit facilities granted by all
banks to a single borrower
group should not exceed QR
3bn.
A bank may not incur an
exposure to an individual
counterparty or group of
closely related counterparties
(not connected to the reporting
bank) which exceeds 15.0
percent of the reporting bank’s
(consolidated) capital base
without the prior written
approval of the CBB. Equivalent
limits are in place for parties
connected to the bank.
15.0 percent per obligor, 400.0
percent for total large
exposures
30
Macroprudential Toolkit: Second Group
Macroprudential Measures Egypt JORDAN LEBANON MOROCCO Tunisia Palestine
General Provisions
YES. According to Obligor Risk Rating
set at seven grades
YES, they are called general
banking risk reserves and are
created for the performing loans
Banks and non-bank financial institutions are requested to
take collective provisions on performing loans based on
impairment tests. For retail loans (excluding housing) a
minimum level of collective provisions has been imposed
by the end of 2014 (1.5 percent of the loan portfolio to be
gradually constituted over 4 years starting 2014).
In addition to the provisions mentioned above, banks and
non-banks financial institutions are requested to take a
general reserve of 1.5 percent of corporate and SME loans
over 4 years (0.25 percent in each of the years 2014 &
2015 and 0.5 percent in each of the years 2016 & 2017)
and 3.5 percent of retail loans excluding housing over 7
years (0.5 percent per year starting 2014).
10.0 percent of the value of
watch listed loans
Banks are obligated since 2011 to constitute
collective provisions by deducting from
their results to cover latent risks on current
commitments and commitments that require
a particular follow-up through the
reservation of unpaid interest related to
consolidated commitments.
In fact, this requirement aim at helping
banks
constitute a capital buffer “safety cushion
”with a view to boosting their resilience in
times of economic or
financial crisis and curb pro-cyclicality.
1.5 percent of direct performing loans
and 0.5 percent of the off-balance sheet
facilities.
Time Varying/Dynamic Loan-
Loss Provisioning
NO NO NO NO
The CBT required banks to constitute
additional provisions on their assets with
seniority in class 4 exceeding or equaling 3
years to cover net risk pursuant to the
following minimum proportions:
• 40.0 percent for assets with seniority in
class 4 of 3 to 5 years
• 70.0 percent for assets with seniority in
class 4 of 6 to 7 years
• 100 percent for assets with seniority in
class 4 exceeding or equal to 8 years
NO
Reserve Requirements on Bank
Deposits
Banks are required to maintain 10
percent of their Egyptian pound deposits
(excluding CD to individuals with
maturities exceeding three years and
direct exposure to a certain tranche of
SMEs Companies) with the CBE as non-
interest bearing reserve. Banks are
required to place 10 percent of their
foreign currencies deposits with the CBE
as interest bearing.
7.0 percent from average of
bank deposits in JD (65.0
percent restricted and 35.0
percent free) and 7.0 percent
from average of bank deposits
in Foreign currency.
Local Currency deposits:
* 25.0 percent on demand deposits
* 15.0 percent on time deposits
Foreign currency deposits:
* 15.0 percent on demand and time deposits
Reserve requirement have been
lowered several times during
last years in a context of
banking system liquidity deficit
The level of the reserve requirement on
banks is 1.0 percent of the outstanding
deposits and other amounts due to clients.
9.0 percent of deposits in each
currency.
Leverage Ratios (Capital to
Assets)
In the phase of implementation according
to agreed schedule with Basel
Committee.
Minimum limit 6.0 percent and
it is calculated as Equity/
Assets
The central bank developed templates for the calculation
of the Leverage Ratio. These templates are submitted on a
semi - annual basis since December 2013.
NO NO NO
31
Macroprudential Toolkit: Second Group (continued)
Macroprudential Measures Egypt JORDAN LEBANON MOROCCO Tunisia Palestine
Limits on Loan-to-Deposit
(LTD) Ratios
Guide limit of 75 percent is used on local
and foreign currency separately
NO NO NO NO NO
Liquidity Requirements
/Buffers
All Banks operating in Egypt are
required to maintain a liquidity ratio of
20 percent for local currency and 25
percent for foreign currency. Liquidity
Ratios according to Basel Committee pre-
set time line (NSFR-LCR).
Legal Liquidity Requirement
(LLR): minimum threshold 70
percent in JD and 100 percent
in all currencies.
Foreign currency liquidity ratio: Net liquid assets in
foreign currency should be no less than 10.0 percent of
deposits and other commitments in foreign currency.
Net Liquid Assets in FC include:
* Placements at the Central Bank excluding required
reserves.
* Net instruments (excluding Lebanese Eurobonds)
maturing within one year.
Deposits and Other commitments include:
* Total customers' deposits (all maturities)
*All other creditors maturing within one year.
For the time being, the
instrument is for a
microprudential use but could
be increased or lowered in the
future if needed for
macrprudential policy
requirement
NO NO
Limits on Real estate
Exposure
The regulation sets a limit of 5 percent of
the bank's total loan portfolio included
under the mortgage finance law.
Maximum limit of 20.0 percent
of customer deposits in local
currency
Although no limits are imposed, the Banking Control
Commission closely monitors exposures to the real estate
and other sectors in order to avoid any excessive
concentration in these sectors.
NO NO 20.0 percent of total loans portfolio.
Limits on Interbank
Exposures
NO
A limit exists on balances
between banks in foreign
currencies
Limit on net credit exposure to unrelated foreign
correspondents
* Total net credit exposures per foreign correspondent
must not exceeds 25.0 percent of Tier 1 capital.
* Banks & non-bank financial institutions are prohibited
from lending and placing with foreign correspondents
rated below BBB or unrated, expect for operational
purposes.
Limit on net placements with related foreign banks and
financial institutions
Total net placements should not exceed 25.0 percent of
Tier 1 capital.
NO NO
Setting an upper ceiling for banks'
placements abroad (55.0 percent of
total deposits).
Forcing banks to diversify their
placeements by financial institutions
and country depending on the rates of
the credit rating agencies.
Prohibiting banks from depositing
balances in non rated institutions for
more than 15.0 percent of their total
outside placements.
setting an upper ceiling for banks'
placements abroad at the level of the
state with 40.0 percent of bank outside
placements (bank outside placements at
the state should not exceed 40.0
percent of bank outside placements).
32
Macroprudential Toolkit: Second Group (continued)
Macroprudential Measures Egypt JORDAN LEBANON MOROCCO Tunisia Palestine
Loan-to-Value (LTVs) Ratios NO. Ratios are closely monitored.
For the purpose of Basel II
regulations the residential
mortgage loans should have a
preferential risk weight of 35.0
percent in which the LTV
doesn't exceed 80.0 percent and
other than that it gets a 100
percent risk weight.
YES, LTV Housing Loans:
75.0 percent of the value of the house
LTV Car Loans:
75.0 percent of the value of the car
LTV Real Estate Commercial Loans:
60.0 percent of the real estate project
NO
- 70.0 percent of the project cost for loans
medium and long term loans
- 80.0 percent for loans with mortgage loans
- 80.0 percent for car loans.
YES
Debt/Loan-to-Income
(DTI/LTIs) Ratios
NO. Ratios are closely monitored.
NO. The banks should set the
debt burden ratio in their credit
policies.
Debt servicing to income: 35.0 percent; it can go up to
45.0 percent in case the borrower benefits from a housing
loan.
NO
40.0 percent of the income for loans to
individuals. This standard is generally
respected by banks despite the fact that it is
a customary rule.
50.0 percent.
General Countercyclical
Capital Buffer/Requirement
In the phase of implementation according
to agreed schedule with Basel
Committee.
NO, A special study was
conducted in this regard which
showed that there is no need to
apply this buffer.
In preparation ONGOING NO
YES, A geopolitical reserve 15 percent
of net profit.
Domestic Systemically
Important Banks Capital
Buffer
Important Banks are closely monitored
by the Supervision Department.
YES, A special study was
conducted in this regard and in
the process of issuing
instructions.
In preparation ONGOING NO
YES, Note: PMA in process of
developing a methodology and
instructions for dealing with DSIBs.
Limits on Domestic Currency
Loans
YES. According to income NO NO NO
Loans of more than 7 years and up to 15
years are granted by banks deposits in the
limit of 3.0 percent of the volume of their
deposits, eventually in special savings
accounts and under form of certificates of
deposit.
- onshore Banks are only allowed to lend
short term credits in domestic currency to
offshore companies
NO. Palestine does not have a national
currency.
Limits on Foreign Currency
Loans
YES. According to income in FX
YES, 30.0 percent. The loan
should be for exporting
purposes only.
NO NO NO
NO. Palestine does not have a national
currency.
Lending Period
(Years)
PD within 12 month
(%)
LTV
Code of credit rating
25
0-8
85%
A and B
25
8-18
80%
C
15
18-61
60%
D
7
61-100
30%
E
33
Macroprudential Toolkit: Second Group (concluded)
Macroprudential Measures Egypt JORDAN LEBANON MOROCCO Tunisia Palestine
Limits on open FX Currency
Position/Currency Mismatch
Long and short positions in any single
currency should not exceed 1 percent
and 10 percent of the capital base,
respectively. While long and short
poistions for all currencies should not
exceed 2 percent and 20 percent of the
capital base, respectively.
15.0 percent for position in total
currencies and 5.0 percent per
currency.
Net trading position: 1.0 percent of Tier 1 capital.
Global FX Position: 40.0 percent of Tier 1 capital.
Banks are allowed to hold a fixed position in foreign
currency up to 60.0 percent of their equity in LBP. This
fixed position is deducted from the calculation of the net
trading position.
Banks are required to maintain
their FX position under 20.0
percent of capital for all
currency and 10.0 percent per
currency.
2 limits on FX position in relation to net
capital equity:
- in currency basis
- in global currencies basis
1 limit related to total loss on a position
Open position of each currency
(difference between assets and
liabilities) short (-) or long (+) should
not exceed +/- 5.0 percent of bank's
capital base and the aggregate total of
shorts and longs should not exceed +/-
20.0 percent of bank's capital base for
all currencies regardless of the sign (+)
or (-)
Limits on Maturity Mismatch
One of the existing prudential
regulations is Maturity ladder that
displays the banks assets and liabilities
according to their maturities and is
comprised of 8 buckets.
The CBE obliged banks to calculate the
gap between total assets and liabilities
for each bucket and specify an internal
limit acceptable for individual and
cumulative gaps.
There are specific instructions
regarding Liquidity maturity
ladder (instructions no.
41/2008 and 43/2008.). The
bank liquid position should be
positive after the fifth bucket.
Article 156 of the code of money and credit stipulates that
banks should ensure adequate matching between the
maturities of their assets and liabilities.
NO
Minimum resources maturities for
mortgage loans:
The mortgage loans having an initial period
between 10 and 15 years must be backed
with resources minimum maturity of 10
years.
The mortgage loans having an initial period
between 15 and 20 years must be backed
with resources
minimum maturity of 15 years.
The mortgage loans having an initial period
between 20 and 25 years must be backed
with resources
minimum maturity of 20 years.
NO
Limits on Exposure
Concentration (ex. Individual
Large Exposure, or
Government Entities as
percent of Total Capital)
Limits imposed on bank's exposure to
single borrower and related parties are
as follows:
20 percent of their capital base if the
exposure is to one counterparty,
or 25 percent of the bank’s capital base if
the exposure is to a group of related
counterparties ,
or Overall large exposure exceeding 10
percent of bank’s capital base should not
exceed in total 8 times the bank’s capital
base.
10.0 percent up to 25.0 percent of
bank's capital base subject to a prior
approval from the PMA.
Per borrower/ Group of Borrowers
* One borrower using facilities in Lebanon and Abroad:
20.0 percent of Tier 1 capital.
* One borrower using facilities abroad only: 10.0 percent
of Tier 1 capital.
* Total facilities of Large borrowers: 400.0 percent of Tier
1 capital (Large borrower is a borrower whose facilities
exceed 10.0 percent of Tier 1 capital).
Per Country / Group of Countries
* Total facilities used in one country rated BBB and
above: 50.0 percent of Tier 1 capital.
* Total facilities used in one country rated below BBB or
unrated:25.0 percent of Tier 1 capital.
* total facilities used in all countries rated below BBB or
unrated: 100.0 percent of Tier 1 capital.
*Total facilities used abroad: 400.0 percent of Tier 1
Capital.
Other Concentration Limits BDL:
limit per non-resident issuer of bonds: 10.0 percent of Tier
1 capital
* Investments in non-resident bonds rated below BBB or
unrated and investments in structured products rated
below A and not capital guaranteed are not allowed.
* Limit on total investments in non-resident bonds (that
should be rated BBB and above): 50.0 percent of Tier 1
capital.
* Limit on total investments in nonresident structured
products (that should be rated A and above and capital
guaranteed): 25.0 percent of Tier 1 capital.
* operations on derivatives for speculative purposes are
not allowed.
YES
YES
The total amount of incurred risks should
not exceed:
- 3 times the net core funds of the lending
institution, for beneficiaries whose incurred
risks for each
of them, amount to 5.00 percent or more of
the aforesaid net core funds,(against 5 times
the net core funds at
the present time), and
- 1.5 times the net core funds of the lending
institution, for beneficiaries whose incurred
risks amount,
for each of them, to 15.00 percent or more of
the aforesaid net core funds(against twice
the net core funds
presently).
- The total amount of incurred risk on
relevant parties as defined by Article 23 of
lawn ° 2001-65 of 10
July 2001 on lending institutions must not
exceed once the net core funds of the
lending institution.
• The incurred risks on the same beneficiary
shall not exceed 25.00 percent of the net
core funds of the bank
Lending Period
(Years)
PD within 12 month
(%)
LTV
Code of credit rating
25
0-8
85%
A and B
25
8-18
80%
C
15
18-61
60%
D
7
61-100
30%
E
34
Macroprudential Toolkit: Third Group
Macroprudential Measures Libya Iraq
General Provisions NO
Time Varying/Dynamic Loan-Loss Provisioning NO NO
Reserve Requirements on Bank Deposits 20.0 percent 15.0 percent on total deposits
Leverage Ratios (Capital to Assets) YES
Not exceeding eight times of the capital and reserves
for all banks
Ceiling on Credit or Credit Growth YES
The total credit ratio must not exceed 8 times of
capital and banks reserves
Limits on Loan-to-Deposit (LTD) Ratios 70.0 percent
YES, according to adopted standard the total credit
must not exceed 70.0 percent of the total deposits
Liquidity Requirements /Buffers YES, 25.0 percent
Liquidity ratio must not exceed 30.0 percent of gross
total assets/liabilities.
Limits on Real estate Exposure 30.0 percent NO
Limits on Other Sectoral Exposure NO
Concentration of credit must not exceed 4 times of
capital and reserves
Limits on Interbank Exposures NO
Credit not to exceed 10. 0 percent of lending bank's
capital and sound reserves
Sector Specific Capital Buffer/Requirement NO NO
Loan-to-Value (LTVs) Ratios NO 60.0 percent of real estate value
Debt/Loan-to-Income (DTI/LTIs) Ratios NO
The loan provided to the occupants of leadership
positions in banks must not exceed 50.0 percent of
total annual incomes
General Countercyclical Capital
Buffer/Requirement
NO
YES, capital adequacy standard is adopted (Basel 2)
by 12.0 percent
Domestic Systemically Important Banks Capital
Buffer
NO
YES, 250 billion Iraqi dinars o its equivalent
Limits on Domestic Currency Loans NO
10.0 percent for moral and natural person. 15.0
percent for person and his companies and relatives
from first and second class
Limits on Foreign Currency Loans NO YES
Limits on open FX Currency Position/Currency
Mismatch
NO YES
Limits on Maturity Mismatch NO
Most of provided loans are short-term loans and
represent the first rank for the period 1 to 2 years
then mid loans they are limited and related to real
estate loans
Limits on Exposure Concentration (ex. Individual
Large Exposure, or Government Entities as
percent of Total Capital)
20.0 percent
Government entities are not allowed to borrow from
Commercial bank, by law.
All of the above mentioned ratios are microprodential
tools applied by Banking Supervision Department at
the Central Bank of Libya.
The loans provided must not exceed 10.0 percent for
natural and moral person including public institutions
of (10.0 percent) of bank capital and its total reserves
35
Macroprudential Framework: First Group
KSA UAE QATAR BAHRAIN KUWAIT OMAN
Does any
institution or
authority within
your jurisdiction
have a formal
mandate for
macroprudential
policy?
YES
Only on the banking
sector
YES YES
Only on the banking
sector
YES
Which institution
has been given this
mandate?
Central Bank Central Bank Central Bank Central Bank Central Bank Central Bank
Integrated
financial
regulator/supervis
or
NO
Banking
regulator/supervis
or
NO
Ministry of Finance On Fiscal policy
Financial stability
council/committee
NO
Higher Committee
on Financial
Stability
Other (Please
Specify)
Securities and
investment
commission on
capital markets
Is the formal
mandate made
explicit in:
Legislation Decision of the Executive
Union Law number
10 of 1980 for the
Central Bank
Under Law number
(13) of 2012 - Law of
the Qatar Central
Bank and the
Regulation of
Financial
Institutions
YES Banking Law
Decision of the
Executive
Memorandum of
understanding
Other (Please
Specify)
Which department
in the central bank
is responsible for
macroprudential
policy ?
The Monetary Policy and
Financial Stability Department
Financial Stability
Division
Financial Stability
and Statistics
Department
Financial Stability
Department
Financial Stability
Department
Financial Stability
Department
36
Macroprudential Framework: First Group (concluded)
KSA UAE QATAR BAH RAIN KUWAIT OMAN
Is there a coordination between
macroprudential policy and
microprudential policies in your
jurisdiction?
The financial stability committee in SAMA
includes deputy governors and directors of
both macro and micro-prudential
supervisory deputyships and departments.
Additionally, SAMA has e stablished a sub -
committee which is mandated to coordinate
and align macro and micro-prudential
regulations together to ensure delivery of
broader financial stability. the mandates also
include formalizing micro and macro-
prudential interactions, information sharing,
policy response assessment and relev ant use
of micro-prudential instruments for
macroprudential purposes
NO
Yes. Both macroprudential and
microprudential policies are being
framed by the Qatar Central Bank
While individual bank's health is
monitored by Banking Surveil lance function
of CBO, Systemic Risk is monitored by the
Financial Stability function. Sectoral
macroprudential caps are in place to
address real estate sector booms.
Is there a coordination between
macroprudential policy and other
macroeconomic policies in your
jurisdiction (monetary policy,
fiscal policy,…)?
The monetary policy and financial stability
representatives are members of both
monetary policy and financial stability
committees at SAMA. In addition, both
monetary policy and financial stability
divisions are structured under the same
department and report to the same director
and deputy governor. For other
macroeconomic policies, the financial
stability team holds pe riodic meetings with
relevant external entities such as the Capital
Market Authority and Ministry of Finance.
NO
Partly yes as QCB also formulates
the monetary policy. The fiscal policy
is under the jurisdiction of the
Ministry of Finance but there is
coordinated approach towards
financial and macroeconomic
stability. A coordination committee
for financial stability exists with
membership from the central bank,
capital markets authority and the
financial center.
As above. The idea is to supplement the
effort of monetary policy to address
economic issues by way of macro prudential
steps so that they do not work to counter
each other. Raising interest rates to contain
inflation may affect earning of banking
sector as it may increase cost of lending and
depress the de mand for them. A
ccordination committee for financial
stability exists which includes membership
from the capital Markets authority and the
Ministry of Finance.
If your jurisdiction does not have a
formal mandate for
macroprudential policies, are there
any plans within the next three
years to introduce a formal and
explicit mandate for
macroprudential policy?
Not applicable
A new financial services law is
currently being draf ted.
Not applicable NO Not applicable
37
Macroprudential Framework: Second Group
EGYPT Jordan Lebanon Morocco Tunisia Palestine Sudan
Does any institution or authority
within your jurisdiction have a
formal mandate for
macroprudential policy?
YES YES NO YES YES NO NO
Which institution has been given
this mandate?
Central Bank YES Central Bank
The committee for coordination
and surveillance of Systemic Risks
(CCSRS) is in charge of the
macroprudential policy
Central Bank Central Bank
Integrated financial
regulator/supervisor
Banking regulator/supervisor
Ministry of Finance
Financial stability
council/committee
YES. the Committee for
coordination and surveillance of
Systemic Risks (CCSRS) is in
charge of the macroprudential
Other (Please Specify)
Is the formal mandate made
explicit in:
Legislation YES YES YES. (in the Banking law) YES
YES (Banking Law and
instructions)
Decision of the Executive
Memorandum of understanding
Other (Please Specify)
Which department in the central
bank is responsible for
macroprudential policy ?
The Macroprudential Unit Financial Stability Department
* A Financial Stability Unit (FSU)
within the Central Bank has been
recently established.
* A department within the Banking
Control Commission has been
established to monitor the systemic
risk in the banking sector as a
whole.
In the central Bank, four entities
contribute to the macroprudential
policy, namely "the studies and
international relations
department”, “The Monetary and
Exchange Operations department”,
“the banking supervision
department” and “the research
department”.
Supervision and Inspection
Department.
Is there a coordination between
macroprudential policy and
microprudential policies in your
jurisdiction?
Based on the Macroprudential unit
continued monitoring assessing for
systemic risks facing the banking
sector, recommendations are
communicated to microprudential
units that could lead to issuing
corrective action measures, e.g.
introduction of new regulations.
There are several joint committees
with banking supervision
department such as Basel III
committee and crisis management
committee.
A Financial Stability Committee
has been recently formed, chaired
by the Vice Governor of the
Central Bank with Members of the
Banking Control Commission, the
Financial Stability Unit and
representatives from other
departments in the Central Bank.
Monthly meetings are held to
discuss the FSU findings and
recommend the necessary measures
to be taken.
The banking supervision which is
responsible for the regulation and
the microprudential surveillance of
banks is a member of the financial
stability committee.
YES YES
38
Macroprudential Framework: Second Group (concluded)
EGYPT Jordan Lebanon Morocco Tunisia Palestine Sudan
Is there a coordination between
macroprudential policy and
microprudential policies in your
jurisdiction?
Based on the Macroprudential unit
continued monitoring assessing for
systemic risks facing the banking sector,
recommendations are communicated to
microprudential units that could lead to
issuing corrective action measures, e.g.
introduction of new regulations.
There are several joint committees with
banking supervision department such as
Basel III committee and crisis
management committee.
A Financial Stability Committee has been
recently formed, chaired by the Vice
Governor of the Central Bank with
Members of the Banking Control
Commission, the Financial Stability Unit
and representatives from other
departments in the Central Bank. Monthly
meetings are held to discuss the FSU
findings and recommend the necessary
measures to be taken.
The banking supervision which is responsible for
the regulation and the microprudential
surveillance of banks is a member of the financial
stability committee.
YES YES
Is there a coordination between
macroprudential policy and other
macroeconomic policies in your
jurisdiction (monetary policy, fiscal
policy,…)?
Coordination takes place among CBE
main functions: Monetary Policy, Reserve
Management, and other Banking
Supervision departments along with
Macroprudential. In addition, deputy
governor of the banking supervision is a
voting member in the monetary policy
committee.
For the monetary policy, there is
coordination with the research and open
market operations departments on several
policy issues.
The recommendations of the macroprudential
policy are made to not prejudice the objective of
the monetary policy which is to maintain price
stability, bec ause the members on the financial
stability committee and the Monetary and
financial committee of the Central bank are the
same, namely the governor of the Central Bank,
the Chief Executive and the heads of “the studies
and international relations”, “The Monetary
Operations and Exchanges”, “the banking
supervision” and “the research” departments.
Indeed, Ministry of Finance, Central Bank,
Insurance authority and market authority are
responsible of the macroprudential policy as they
are members in the CCSRS.
YES YES
If your jurisdiction does not have a
formal mandate for macroprudential
policies, are there any plans within the
next three years to introduce a formal
and explicit mandate for
macroprudential policy?
Not applicable Not applicable Not applicable Not applicable YES YES
39
Macroprudential Framework: Third Group
LIBYA IRAQ
Does any institution or authority within your jurisdiction
have a formal mandate for macroprudential policy?
NO YES
Which institution has been given this mandate? Central Bank of Iraq
Is the formal mandate made explicit in:
Legislation NO Banking law and executive instructions issued according to it
Which department in the central bank is responsible for
macroprudential policy ?
Banking and Credit Control Dept.
Is there a coordination between macroprudential policy
and microprudential policies in your jurisdiction?
The legslative authority through financial services court
formed according to CBI Law
Is there a coordination between macroprudential policy
and other macroeconomic policies in your jurisdiction
(monetary policy, fiscal policy,…)?
Independent Monetary Policy prepared by CBI according to
law. Financial policy is prepared by special law and approved
by parliament and mandate executive authority to pay public
fund
If your jurisdiction does not have a formal mandate for
macroprudential policies, are there any plans within the
next three years to introduce a formal and explicit
mandate for macroprudential policy?
YES, The Central Bank of Libya took the initiative of
addressing the issue of Macroprudential policy by forming a
committee to draft a proposal in order to introduce the subject
to all concerned parties.
Not applicable
40
Basel III Implementation Schedule: First Group
KSA UAE QATAR BAHRAIN KUWAIT OMAN
Capital Adequacy Ratio
2015: Final rule in force: the domestic
legal and regulatory framework is
already applied to banks.
To be finalized in the near future Implemented from 2014 6.5 percent
2014: 12.0 percent
2015: 12.5 percent
2016: 13.0 percent
2015: Common Equity Tier 1 - 7
percent
2016: Tier 1- 9 percent
2017: Total CRAR 12 percent
2018: Capital Conservation
Buffers currently 0.625, full effect
2.5 percent by 2019
2019: Countercyclical Capital
Buffers up to 2.5 percent, full
effect by 2019
Framework for DSIBs.
2016: The framework for DSIBs has
been implemented beginning 2016.
To be finalized in the near future Implemented from 2016
Number of banks=5
No additional Capital buffer
Resolution Recovery Plan
submitted to the CBB/ Subject to
more intensive Supervision
2016: 0 percent - 2 percent
2015: 1 bank designated as D-SIB
2016: 1 percent additional CET1
In phases of 40 bps (2017), 30 bps
(2018) and 30 bps (2019)
Liquidity Ratio
2015: Final rule in force: the domestic
legal and regulatory framework is
already applied to banks.
2016: Final circular #107020 on
amended LCR was issued on 10 July
2013 and in force,
To be finalized in the near future
Liquidity coverage ratio to be 60
percent in 2014, increasing by 10
percent each year and reaching
100 percent by 2018. NFSR to be
70 percent in the current year,
increasing by 10 percent each
year to reach 100 percent by
2018.
2015: LCR min. 60 percent
2016: LCR 70 percent
2017: LCR min 80 percent
2018: LCR min 90 percent
2019: 100 percent LCR NSFR
minimum standard
2015: 100 percent
2016: 100 percent
starting from 60 percent in 2015
up to 100 percent by 2019
Leverage Ratio
2015: Final rule in force: the domestic
legal and regulatory framework is
already applied to banks.
2016:Leverage ratio is Monitored
quarterly at a minimum of 5 percent
since January 2011 on the basis of
BCBS document of December 2010.
Disclosure will start in 2015 as per the
BSCS requirements. Any other
adjustments to definition and
calibration will be made by 2017,
To be finalized in the near future
Already implemented. Ratio set
at 3 percent
2017: Disclosure starts
2018: Migration to in 2018
2014: 3 percent
2015: 3 percent
2015: 3 percent
LCR 100 percent when fully
phased in
41
Basel III Implementation Schedule: Second Group
Egypt Jordan Lebanon Morocco Tunisia
Framework for DSIBs In progress
still not decided (but there is currently
a committee working on issuing Basel
III Instructions)
BDL and BCCL are setting the definition for Domestically Systemically
Important Financial Institutions and the treatment to be adopted for them, based
on a series of consultations and practices worldwide.
Number of banks: Ongoing studies
Additional capital/times line: circular to
be adopted by the end of 2015
NO
Liquidity Ratio
In the phase of
implementation according to
agreed schedule with Basel
Committee
still not decided (but there is currently
a committee working on issuing Basel
III Instructions)
Two Quantitative Impact Studies have been performed so far .
BDL will decide on the factors to be used in the calculation of the L.C.R. in
accordance with Basel 3 Liquidity Standards.
BCCL is preparing templates for the calculation of the NSFR in accordance with
Basel III liquidity standard
LCR: 2015: 60 percent, 2016: 70 percent,
2017: 80 percent, 2018:90 percent, 2019:
100 percent. NSFR: Regulation
implementation not yet planned
The CBT has published in
November 2014 the new liquidity
ratio by opting for the new ratio
Basel Liquidity Coverage Ratio
(LCR) . The LCR is the net outflow
of cash coverage by outstanding
high quality liquid assets on a 30-
day horizon in a liquidity tension.
LCR timeline: 2015: 60 percent,
2016: 70 percent, 2017: 80 percent,
2018: 90 percent 2019: 100 percent
Leverage Ratio
In the phase of
implementation according to
agreed schedule with Basel
Committee
still not decided (but there is currently
a committee working on issuing Basel
III Instructions)
Templates have been developed and are submitted to BCCL on semi-annually
basis by banks.
BDL will set a minimum leverage ratio for banks in 2015.
Ongoing studies Not Yet
Banks are required to gradually abide by the following capital requirements by
the end of 2015:
• Min CET1 Ratio ≥ 5.5 percent
• Min T1C Ratio ≥ 7.5 percent
• Min TC Ratio ≥ 9.5 percent
In addition, they are required to build up a capital conservation buffer of 2.5
percent of Risk-Weighted Assets to reach the following minimum capital
requirement (including conservation buffer) by the end of 2015:
• Min CET1 + Capital Conservation Buffer ≥ 8 percent
• Min T1C + Capital Conservation Buffer ≥ 10 percent
• Min TC + Capital Conservation Buffer ≥ 12 percent
BDL is expected to issue a framework on Countercyclical Capital Buffer
still not decided (but there is currently
a committee working on issuing Basel
III Instructions)
Capital Adequacy Ratio
CAR (additional capital): Core tier I (8
percent), tier I (9 percent), CAR (12
percent) Timeline: In force since 2014 -
progressive implementation until end
2018-
Operational risk and market risk are
not yet considered in the CAR.
Regarding the regulation in force
the core tier 1 is 7 percent
In the phase of
implementation according to
agreed schedule with Basel
Committee
42
Basel III Implementation Schedule: Third Group
Libya Iraq
Capital Adequacy Ratio NO
Central Bank has not adopted Basel III but adopted Basel
II through three pillars which are capital enhancement,
market risk and operational risk.
Framework for DSIBs NO
The central bank has adoped (CAMEL) system to
evaluate banks.
Liquidity Ratio
Commercial banks are obliged to develop their risk
policies and risk management.
Liquidity ratio must not exceed 30 percent of gross total
assets/liabilities.
Leverage Ratio
Commercial banks are obliged to develop their risk
policies and risk management.
NO.
43
Financial Stability: First Group
KSA UAE
Adoption of Early Warning System
A macroprudential dashboard has been launched. The
dashboard is part of an integrated early warning system
and provide recent changes and developments in the
banking, insurance, capital market, and other
macroeconomic developments that have implications on
financial stability. Another tool that has been used is an
excel based early warning model that tracks changes in
the capital market index and the credit to GDP ratio.
The central bank monitors a series of early warning
indicators including the IMF financial soundness
indicators (both core and recommended where possible).
In addition, indicators such as credit to GDP ratio gap,
deviation of real estate prices and yields from long-term
trends and capital market ratios are also monitored.
A financial stability index is currently being developed
which shows the current status of financial stability but
would allow the testing of new early warning indicators.
Establishment of Financial Stability Office
Publishing Financial Stability Reports A final draft of the report is under review.
An annual financial stability report is issued since 2012,
the report communicates the central bank's views on
financial stability and the build-up of systemic risk that
might impact the UAE financial system. The reports are
available on the central bank website and we expect to
release the 201 4 report by Mid June 2015
A regulatory framework has been adopted. Financial
stability department is established, Financial Stability
Committee is formed, coordination between different
regulatory authorities is in place and under further
developments, and a process for macro-prudential policy
decisions and implementation is adopted.
The Regulatory Framework
Currently the UAE applied Basel II standardized
approach for capital adequacy ratio.
The central bank is in the process of implementing Basel
III capital and liquidity standards by 2019.
The Financial Stability Unit was created in 2008 at the
Central Bank.
The Unit monitors key financial soundness indicators for
signs of vulnerability building up in the financial system;
it also tracks developments in key sectors of the economy
such as the real estate and the stock market. Exposures
to other countries in the form of a funding source, or a
credit exposure is also regularly reviewed to identify
concentration.
The Unit is also responsible for recommending the use of
macro-prudential tools to achieve financial stability
objectives, conducts periodic capital and liquidity stress
testing of the banking system.
A financial stability division has been established. The
department is in charge of setting up and reviewing
macro-prudential policies, assessing systemic risk and
provide recommendations, perform macro stress testing,
publish financial stability reports, in addition to its role as
a secretariat for the financial stability committee in
SAMA.
The financial stability division at the central bank is
responsible for conducting stress testing.
The IMF next generation balance sheet stress testing
tool was used to conduct the stress test in 2014 ; the tool
allows running adverse economic scenarios through
“satellite models” and then translating the shocks into
impact on key risk parameters’ at banks, thereby
enabling an assessment of their solvency in light of such
adverse scenarios.
Financial stability division is responsible for performing a
stress testing. The division is now updating and
improving the stress testing model used by SAMA.
Additionally, banks run stress testing in a semi-annual
bases and are reviewed by SAMA on annual bases
Responsibility and Implementation of Stress Testing
of Banks
44
Financial Stability: First Group (continued)
QATAR BAHRAIN
Adoption of Early Warning System
QCB has been monitoring various financial stability
indicators over the past several years. Enhancement of
early warning system is an ongoing process and currently
QCB is working on further strengthening its early
warning system.
The Early Warning Report (EWR) is a strictly confidential, internal CBB document, produced semi-annually. It's aim is to
identify potential threats to the safety and soundness of systemically-important banks in Bahrain. It assesses key soundness
indicators for these institutions and produces an overall rating of financial soundness for each bank. The report assesses the
financial condition and performance of selected, systemically-important banks in Bahrain. The aim is to detect any potential
threats to their safety and soundness.
For the purpose of this report, “systemically-important banks” are defined as locally-incorporated retail and wholesale banks in
Bahrain (both conventional and Islamic).
The banks were carefully categorized as systematically important based on specific criterion: cross-jurisdictional activity, size,
interconnectedness, substitutability, and complexity. Since the stress test will only look at systemically important banks in
Bahrain, it is often referred to in some writings as “system-oriented” instead of “system-wide” stress testing.
Establishment of Financial Stability Office
Publishing Financial Stability Reports
Financial Stability and Statistics Department of the QCB
is responsible for publishing Financial Stability Reports.
FSSD, QCB has been publishing Financial Stability
Reviews (FSRs) since 2009.
In pursuit of its objective of promoting financial stability, the CBB conducts regular financial sector surveillance, keeping a
close watch on developments in individual institutions as well as in the system as a whole.
The Financial Stability Report (FSR) is one of the key comp onents of CBB’s financial sector surveillance framework. Produced
semi-annually by the Financial Stability Directorate (FSD), its principal purpose is macro-prudential surveillance, assessing the
safety and soundness of the financial system as a whole (intermediaries, markets and payments/settlement systems). The
ultimate objective of such macro-prudential analysis is to identify potential risks to financial stability and mitigate them before
they crystallize into systemic financial turbulence.
Responsibility and Implementation of Stress Testing
of Banks
The CBB conducts sensitivity stress testing exercises semi-annually for the Domestic Systemically Important Banks (D-SIBs).
The tests are conducted for locally incorporated retail and wholesale banks in the Kingdom of Bahrain (both conventional and
Islamic). The banks were carefully categorized as systemically important based on specific criteria such as cross-jurisdictional
activity, size, interconnectedness, substitutability, complexity and others. There are two Islamic Banks among the D-SIBs.
The CBB identified 1) Credit risks and 2) Liquidity risks as the relevant challenges for the D-SIBs. Therefore, the focus is on
these two areas.
In the credit risk scenarios, the banks are tested under various assumptions. Banks’ balance sheets are stressed (for example, an
increase in the share of non-performing facilities) and the results are observed in the pre-shock and post-shock CAR. The aim
of the exercise is to measure the impact on CAR and the corresponding capital shortfall for the banks to meet the CBB’s
minimum requirement.
Similarly, the banks’ balance sheets are stressed under various assumptions in the liquidity risk scenarios. The liquidity
exercises aim to measure the resilience of financial institutions in Bahrain if there were a sudden surge in withdrawals of
deposits, the main determinant being the length of time before a bank runs out of liquid assets.
The CBB has utilized both top-down and bottom-up approaches in conducting its sensitivity stress testing exercises. Relevant
data are collected from the banks and tested under several scenarios with varying degrees of shock (low, moderate, severe and
very severe). The stress test model used is based on stress testing exercise tools developed by the IMF. The model was
modified to fit the Bahraini banking system.
The CBB is currently working on further developing its stress testing strategy with plans that include developing other model
based stress tests to assess other risks and the involvement of banks in further exercises.
Stress testing of banks is being done at two levels. QCB
has been conducting stress tests for credit, liquidity,
market and cross border risks. The results of these tests
are being published in the FSRs. Based on the parameters
set by the QCB, the banks are also conducting stress tests
and submitting their results to the QCB.
A key objective of the Central Bank of Bahrain (CBB) is to ensure the continued soundness and stability of financial
institutions and markets.
The CBB defines financial stability as a situation where there is continuous and prudent provision of financial services, even in
the face of adverse shocks. It believes that financial stability is critical for maintaining Bahrain's position as an international
financial center and for ensuring that the sector continues to contribute significantly to growth, employment and development
in Bahrain.
The pursuit of this objective is the primary responsibility of CBB's Financial Stability Directorate (FSD), which conducts
regular surveillance of the financial system to identify areas of concern and undertakes research and analysis on issues relating
to financial stability.
The Directorate prepares Financial Stability Reports (FSRs) for CBB management, reviewing recent trends and identifying
areas of concern which require supervisory and policy attention. The FSD has developed relevant Financial Soundness
Indicators to monitor the financial sector on a continuous basis.
Financial Stability and Statistics Department of the QCB
has ben monitoring financial stability in Qatar and
publishing the annual Financial Stability Reviews. Based
on the recommendations of the central bank's Strategic
Plan, Financial Stability and Risk Control Committee,
chaired by the QCB Governor, was set up and it
oversees coordination between the regulatory authorities
in Qatar, including the implementation of the strategic
plan for financial sector regulation.
The Regulatory Framework
The Central Bank of Bahrain ('CBB') is responsible for regulating and supervising the whole of Bahrain's financial sector. Prior
to the creation of the CBB in September 200 6, the Bahrain Monetary Agency ('BMA') had previously acted as the sole
regulatory authority for Bahrain's financial sector. (The BMA was responsible since its establishment in 1973 for regulating
Bahrain's banking sector, and was subsequently given responsibility in August 2002 for regulating Bahrain's insurance sector
and capital markets.)
The CBB's duties include the licensing and supervision of banks (both conventional and Islamic), providers of insurance
services (including insurance firms and brokers), investment business licensees (including investment firms, licensed
exchanges, clearing houses and their member firms, money brokers and investment advisors), and other financial services
providers (including money changers, representative offices, finance companies and ancillary service providers).
The CBB also regulates Bahrain’s licensed exchanges and clearing houses and acts as the Listing Authority for companies and
financial instruments listed on the exchanges. It is also responsible for regulating conduct in Bahrain's capital markets.
The CBB's supervision of licensees is a mixture of onsite assessment (including the quality of systems and controls, and of
books and records) and offsite supervision (which focuses on the analysis of regulatory returns, as well as of audited financial
statements and other relevant public information).
Onsite examinations are undertaken by the CBB's own examiners, as well as by experts appointed for the purpose by the CBB
(such as accountants and actuaries). Offsite supervision also includes regular prudential meetings with licensees to review
performance, strategy and compliance matters (such as capital adequacy, large exposures and liquidity).
For banks, a risk profiling system has been developed to underpin the above supervisory efforts, by providing a detailed
framework for assessing the impact and risk profile of individual licensees, and prioritizing subsequent supervisory efforts.
Work is underway to extend this profiling system to insurance companies.
Where a licensee fails to satisfy the CBB's regulatory requirements, then the measures outlined in the Enforcement Modules of
the applicable Volumes of the Rulebook may be applied. Enforcement measures include formal warnings, directions (e.g. to
cease or desist from an activity), formal requests for information, adverse fit & proper findings, financial penalties or
investigations. Extreme violations of the CBB's regulatory requirements may entail cancellation of a license, administration or
criminal sanctions
The Qatar Central Bank (QCB) is the regulator of the
banking system as well as the insurance sector in Qatar.
Offshore banks and insurance companies in Qatar
Financial Center are regulated by Qatar Financial Center
Regulatory Authority (QFCRA). Capital markets and
investment funds are being regulated by Qatar Financial
Markets Authority. The QCB, working closely with
QFCRA and QFMA, has developed a Strategic Plan that
is being implemented during 2013 – 2016 within the
context of the overall objectives of the Qatar National
Vision 2030 and the Qatar National Development
Strategy Plan 2011–2016. The Strategic Plan focuses on
enhancement of micro- and macro-prudential regulatory
framework and financial infrastructure as per the
international best practices, enhancement of consumer
and investor protection, promotion of regulatory
cooperation among the three regulatory authorities and
development of human capital.
Strengthening of risk-based regulation, promotion of
Islamic financial institutions and markets, enhanced
cooperation within the GCC and increased involvement
with the Basel Committee, IAIS and IOSCO are the
thrust areas in regulations.
45
Financial Stability: First Group (concluded)
KUWAIT OMAN
Adoption of
Early Warning
System
While preliminary work has been done in
putting together a formal EWS, the system
is not yet operational due to various data
limitations.
An Early Warning Mechanism (EWM) for Oman, which
involves identification of suitable variables having
characteristics of signaling of early warning on impeding
distress. This has been done by computing empirically the
thresholds for each variable, which if breached either way can
forewarn possible vulnerabilities in the system. This will be
shortly operationalized to have a sense on the movement of such
indicators having potential vulnerabilities implications so that
timely macroprudential intervention can be envisaged.
Establishment
of Financial
Stability Office
Oman has a financial stability office that monotors the stability
of the banking system with the help of an early warning system
and a dashboard, does periodic stress testing of banks, and
publishes an annual financial stability report.
Publishing
Financial
Stability
Reports
FSO published its first annual 'Financial
Stability Report' in 2013 , followed by the
second annual FSR in 2014. These reports,
available on the CBK website
(http://new.cbk. gov.kw/en/statistics-and-
publication/publications/financial-stability-
report.jsp), cover in details the key
developments in the banking sector
(making an assessment of financial
intermediation, analyzing key risks in the
banking sector and examining the trends in
banks' profitability, solvency and resilience
against major shocks), domestic markets
(money, foreign exchange, equity, and real-
estate markets) and the payment and
settlement systems. form 2014, the FSR
has been published in both Arab and
English.
A data series on a number of variables in the four constituents of
financial stability analysis (economy, markets, institutions and
infrastructure) has been prepared. The movem ents in these
variables are studied and monitored. A Systemic Risk
Dashboard detailing the issues of vulnerabilities in the system is
prepared on quarterly basis for the information of the Higher
management of CBO. A larger version of this, Financial Stability
Reports are published in public domain on an annual basis
which examines the potential vulnerabilities of the system in
sync with global developments and the systems in place to
handle them in line with global regulatory reforms. The third
Report is in the process of preparation.
The Central Bank of Kuwait (CBK) has
taken several steps in line with those taken
by the international banking community in
response to the financial crisis. Some of
these steps include new supervisory
methods such as risk based supervision,
stress tests on the banks, and the taking of
necessary measures in the application of
Basel III. Finally, the introduction of
governance rules in line with international
standards was a priority of the Central
Bank of Kuwait as it enabled Kuwait’s
regulatory standards to be in line with the
best international banking standards.
Furthermore The CBK is presently using
several analytical methods to diagnose
issues of systemic risk. These methods
include: stress testing, and quarterly
reports on financial stability.
Central Bank of Oman (CBO) regulates banks, finance
companies, exchange houses, and money and forex markets of
Oman. Insurance sector, mutual funds sector and securities
markets are regulated by the Capital Markets Authority (CMA).
Deposit insurance and credit rating frameworks are also
administered by the CBO. Micro-surveillance of banking sector
is done by off-site assessment of performance at CBO and on-
site examination of banks at their premises. Off-site assessment
(OSMOS) triggers the focus points bank examination for which
Risk Based Supervision (RBS) has been introduced. For Macro-
financial surveillance to monitor systemic risk a new department
(Financial Stability Department-FSD) has been established at
CBO which renders focused attention on managing financial
instability in the whole system. It keeps macro-economy,
Financial Markets, Financial Institutions and Financial
Infrastructure under its radar. Supplementing use of macro-
prudential tools to fine-tune efficacy of monetary policy making
is in practice at CBO.
The
Regulatory
Framework
Central Bank of Kuwait (CBK) established
an independent Financial Stability Office
(FSO) in June 2011 in its pursuit to ensure
a sound and stable financial system. FSO
publishes an annual Financial Stability
Report in both English and Arabic.
Moreover, FSO prepares a Quarterly
Report for internal use, covering the major
developments in the banking sector and
domestic markets, and is also responsible
for conducting stress tests on quarterly
basis, among other tasks.
A data series on a number of variables in the four constituents of
financial stability analysis (economy, markets, institutions and
infrastructure) has been prepared. The movem ents in these
variables are studied and monitored. A Systemic Risk
Dashboard detailing the issues of vulnerabilities in the system is
prepared on quarterly basis for the information of the Higher
management of CBO. A larger version of this, Financial Stability
Reports are published in public domain on an annual basis
which examines the potential vulnerabilities of the system in
sync with global developments and the systems in place to
handle them in line with global regulatory reforms. The third
Report is in the process of preparation.
Responsibility
and
Implementatio
n of Stress
Testing of
Banks
The FSO is responsible for conducting
Quarterly Stress Testing Exercise. The
report is prepared for internal consumption,
using the results of FSO's in-house
quarterly stress testing exercise which aims
to determine the resilience of the banking
systems against various macroeconomic
and financial shocks.
46
Financial Stability: Second Group
EGYPT JORDAN
Adoption of
Early Warning
System
The Macroprudential unit is in phase of
implementing Early Warning tools, such as
Macroeconomic Early Warning models and
Countercyclical capital buffer model.
Adopted an Initial Early Warning
System
CBE established in 2006 an independent
Financial Stability Unit under the umbrella of the
Banking Supervision named Macroprudential
Unit. The unit has been tasked to develop
analysis framework that evaluates health,
soundness and vulnerabilities of Egyptian
banking sector at macro level within three main
functions: Financial and Banking Analysis,
Macro-economic Research, and Modeling. The
main goal is to identify systemic risks to Banking
Sector financial stability and to take corrective
action measures.
Publishing
Financial
Stability Reports
Macroprudential Unit has worked in cooperation
with the World Bank for issuing its Financial
Stability Report. Financial Stability Report
covers: Macroeconomic and Financial Markets
(International and Domestic overview, financial
markets, and Real estate development), Banking
Sector Financial Analysis (Financial Statements'
Analysis, and Financial Soundness Indicators'
Analysis), and Banking Sector Structural
Developments. Previously, the FSR was
submitted to the CBE board directors and will be
published during the course of this year.
Two reports have been published 2012
and 2013 and currently working on
2014 report
The Regulatory
Framework
The Banking supervision department is
in the process of issuing Basel III
instructions in collaboration with the
Financial Stability Department
The financial stability department has
been established in 2012
Establishment of
Financial
Stability Office
According to Law no. 88 of the year 2003
promulgating the law of the central bank, the
banking sector and money; the Central Bank of
Egypt (CBE) focuses on realizing price stability
and banking system soundness, within the
context of the general economic policy of the
state. In doing so the CBE has the powers of
supervising the units of the banking sector and
among its mandates is to set rules for regulating
and supervising banks' activities. In setting those
rules, the main target of the CBE is to preserve
the safety and soundness of the banking system
thus enhancing financial stability. In addition, the
Macroprudential unit is responsive to any
developments that could lead to issuing other
safeguard regulations.
CBE implements different stress testing models
since 2010 as a result of increasing attention in
the recent years as a supervisory and crisis
management tool. The tests offer an integrated
approach in implementing stress testing against
all material risks (Credit, Market, Liquidity, and
Interest rate), With bottom-up and top-down
approaches. These tests use are sensitivity
analysis; single and simple multi-factor shocks.
Responsibility
and
Implementation
of Stress Testing
of Banks
FSD conducts top down stress testing.
Also, is responsible for bottom-up stress
testing and is in the process of issuing
new rules regarding bottom-up stress
testing.
47
Financial Stability: Second Group (continued)
LEBANON MOROCCO
Adoption of
Early Warning
System
An early warning system
developed at the level of the
Financial Stability Unit is
functional since June 2014.
The central bank has established a systemic risk
mapping based on a selection of early warning
indicators likely to identify the development of actual
or potential risks to the financial system. These
macroprudential indicators are designed to assess
risks in financial institutions and markets, as well as
risks that might arise from the real economy, mainly
corporate, real estate and household sectors.
Macroprudential indicators are assessed in view of
trends in their historical values over a long period and
international comparisons with other developed and
emerging countries. Forecasts of some leading
indicators are also considered, in order to give the
analysis a prospective dimension. Scores on a scale -
of 1 to 5- are attributed to reflect the level of risk.
Publishing
Financial
Stability Reports
NO
The first financial stability annual report was
published in 2014, July 24th
The central bank and the
Banking Control Commission
of Lebanon are in process of
implementing the Basel III
amendments.
The Regulatory
Framework
1) achieved : legal mandate for macroprudential
surveillance (banking law)
2) ongoing: - legal mandate for "contribution to
financial stability" for the Central bank (ongoing
reform of the Central bank act)
- DSIB's framework
3) planned: other macroprudential toolkit regulatory
framework namely countercyclical buffer
Establishment of
Financial
Stability Office
Recently established in 2014.
The central bank implemented top down stress tests
revolved around three approaches: stress tests of
balance sheet sensitivity (conducted by the Banking
Supervision Department), stress tests of interbank
contagion (conducted by the Monetary and Exchange
Department) , and macro stress tests (conducted by
the Research Department)
BAM implemented also; bottom up stress tests
conducted by banks and supervised by the Banking
Supervision Department.
Responsibility
and
Implementation
of Stress Testing
of Banks
The Banking Control
Commission is responsible for
conducting stress tests on
banks. Several stress tests
were performed on banks
operating in Lebanon and their
exposures abroad.
48
Financial Stability: Second Group (concluded)
Palestine Sudan
Adoption of Early
Warning System
An early warning system exists consisting of the
following:
-The UBPR financial ratios for each bank and for the
banking system as a whole
-Financial Soundness Indicators (FSIs)
-Stress Testing (conducted by the PMA quarterly, and
conducted by banks semi-annual)
-Montering liquidity on daily basis for each bank and
the banking system
-Off-site and on-site inspection
- Monetaring systemic risks regarding exposures of
outside investment and exposures to Govenment and its
emploees
- Crisis managemet and business continuity plans
including establishment of (AS and DRS) sites.
Publishing
Financial
Stability Reports
YES
Financial stablity uint
prepares report on quartely
basis
The Regulatory
Framework
Establishment of
Financial
Stability Office
Responsibility
and
Implementation
of Stress Testing
of Banks
Our regulatory framework is consists of the following:
-Laws
-Regulations
-Instructions
-circulars
We are in process of developing our practices follows:
-Risk-Based Supervision
-Basel II/III
set up strategy for financial
inculsion by rasing the
banking awarness through
workshop in deffent state .
Regulation governing the
offshore banking.Circular
concerning the requirmeent
of AML AND CFT.
The financial stability office consists of the following
departments:
- Supervision & Inspection Department
-Payment System Dept.
-Enterprise Risk Management
-Business Continuity Unit
-Market Coduct Dept.
Financial Stability Unit exists
since 2013
Stress testing conducted since 2011. By the end of 2014
PMA developed the stress testing instructions, these
instruction take into consideration the best practices in
this regard and implemented by banks and the PMA (the
wide industry-stress test).
Planning to implement the
ICAAP and we have a
certain model for stress
testing about credit,
exchange rate and liquidtiy.
49
Financial Stability: Third Group
Libya Iraq
Adoption of Early Warning
System
YES Currently under review
Publishing Financial Stability
Reports
The department of banking supervision
publishes an annual report dealing with the
stability and soundness of banking sector,
and providing financial indicators about
commercial banks.
Annual reports on financial stability
position in Iraq and distributed it to
formal and non-formal parties and
University researchers
Responsibility and
Implementation of Stress
Testing of Banks
The department of banking supervision is
responsible for implementing stress testing
of banks.
Currently under review
The Regulatory Framework
The existing regulatory framework is
mainly for micro-prudential policies.
Regulatory instructions exisit to achieve
financial stability as stipulated under
Article 3 of the Central Bank of Iraq
Act.
Establishment of Financial
Stability Office
There is a committee within the Central
Bank of Libya which has been established
and mandated to a framework aiming for the
development of a memorandum of
understanding with other concerned parties.
Central Bank of Iraq is examining
establishing specialized unit within the
central bank.
50
Financial Stability Indicators: First Group
Capital Adequacy Ratio
NPLs to Loans
Provisioning Rate (general plus specific)
Return of Assets
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KSA 20.6 16.0 16.9 17.6 17.6 18.2 17.9 17.9
UAE 17.0 17.0 14.0 13.0 20.0 22.0 21.0 21.0 19.0 18.0
Qatar 24.8 15.1 13.5 15.5 16.1 16.1 20.6 18.9 16.0 12.8
Kuwait 18.9 18.5 18.0 18.9 18.3
Oman 17.2 15.9 14.7 15.6 15.8 15.9 16.0 16.2 15.1
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KSA 2.0 2.1 1.4 3.3 3.0 2.2 1.7 1.3 1.1
UAE 8.0 6.0 3.0 3.0 5.0 6.0 7.0 9.0 8.0 7.0
Qatar 4.3 2.2 1.5 1.2 1.7 2.0 1.7 1.7 1.9 1.7
Kuwait 8.9 7.3 5.2 3.6 3.5
Oman 22.0 19.1 16.3 15.0 13.4 12.4 12.4 12.5 12.2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KSA 182.0 143.0 153.0 89.8 116.0 133.0 145.0 163.0
UAE 95.0 98.0 100.0 99.0 85.0 84.0 87.0 83.0 92.0 102.0
Qatar 84.3 94.3 90.7 83.2 84.5 85 .1 87.2 97.5 96.8 99.1
Kuwait 95.1 134.6 139.4
Oman 102.9 110.0 131.0 110.3 116.4 124.7 135.9 138.0 136.2
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KSA 4.3 2.8 2.7 3.1 2.9 2.7 2.6 2.6 2.5
UAE 1.5 1.2 1.4 1.5 1.4 1.5 1.7
Qatar 4.30 3.7 3.6 2.9 2.6 2.6 2.7 2.4 2.1 2.1
Kuwait 1.2 1.1 1.2 1.0 1.0
Oman 2.9 2.8 2.3 2.1 1.9 1.8 1.8 1.8 1.8
51
Financial Stability Indicators: First Group (concluded)
Return on Equity
Bahrain
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
KSA 30.4 22.3 20.5 23.0 20.4 19.4 18.7 18.6 18.5
UAE 14.3 9.8 11.6 12.5 11.2 11.9 13.7
Qatar 28.5 27.2 30.4 21.5 19.3 19.9 18.6 17.7 16.5 16.5
Kuwait
Oman 22.0 19.1 16.3 15.0 13.4 12.4 12.4 12.5 12.2
Retail
Conventional
Wholesale
Conventional
Retail
Islamic
Wholesale
Islamic
Retail
Conventional
Wholesale
Conventional
Retail
Islamic
Wholesale
Islamic
Retail
Conventional
Wholesale
Conventional
Retail
Islamic
Wholesale
Islamic
Retail
Conventional
Wholesale
Conventional
Retail
Islamic
Wholesale
Islamic
Retail
Conventional
Wholesale
Conventional
Retail
Islamic
Wholesale
Islamic
Capital Adequacy Ratio
19.9 24.1 17.7 22.6 19.9 24.1 19.1 23.8 19.3 23.6 18.5 9.4 19.2 22.2 17.3 25.8 18.6 20.8 15.4 24.8
NPLs to Loans
4.6 7.7 16.5 7.1 4.9 8.5 15.0 6.0 4.2 8.1 15.1 6.2 4.1 6.9 12.1 5.2 3.3 5.7 12.6 4.9
Provisioning Rate (specific)
45.5 47.3 34.1 66.6 49.7 54.8 43.5 64.7 66.3 79.5 40.0 23.9 53.5 65.6 41.5 73.4 60.9 75.5 38.3 76.4
Return on Assets
1.2 0.3 (0.3) (1.8) 1.3 0.7 (0.4) (2.0) 1.3 0.4 (0.3) 0.4 1.8 1.3 0.1 0.8 1.2 0.6 0.4
Return on Equity (Locally incorporated) 9.6 8.6 (2.4) 8.6 10.7 4.6 (3.2) (1.3) 11.5 4.6 (2.8) 7.1 17.2 8.1 0.4 5.1 11.3 4.0 3.9
2014
2010
2011
2012
2013
52
Financial Stability Indicators: Second Group
Capital Adequacy Ratio
NPLs to Loans
Provisioning Rate (general plus specific)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Egypt 13.7 14.7 14.8 14.7 15.1 16.3 15.9 14.9 13.7
Jordan 17.6 21.4 20.8 18.4 19.6 20.3 19.3 19.0 18.4 17.4
Lebanon 12.5 12.2 13.7 13.4 11.6 13.0 14.5 14.9
Morocco 11.5 12.3 10.6 11.2 11.7 12.3 11.7 12.3 13.3 13.5
Palestine 19.2 20.3 21.4 21.1 20.3 20.0 19.0
Sudan 19.0 19.0 22.0 11.0 7.0 10.0 13.0 12.0 17.0 18.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Egypt 26.5 18.2 19.3 14.8 13.4 13.6 10.5 9.8 9.3
Jordan 6.6 4.3 4.1 4.2 6.7 8.2 8.5 7.7 7.0 7.0
Lebanon 10.1 7.5 6.0 4.3 3.8 3.8 4.0 4.2
Morocco 15.7 10.9 7.9 6.0 5.5 4.8 4.8 5.0 5.9 6.4
Palestine 8.2 4.1 3.1 2.7 3.1 2.9 2.5
Sudan 7.0 19.0 26.0 22.0 21.0 14.0 13.0 12.0 8.0 7.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Egypt 51.0 76.2 74.6 92.1 100.4 92.5 94.5 97.1 99.8
Jordan 78.4 80.0 67.8 63.4 52.0 52.4 52.3 69.4 77.0 76.4
Lebanon 76.8 86.4 99.7 109.3 110.1 113.7 107.9 103.0
Morocco 76.4 73.5 75.5 75.6 76.6 76.0
Palestine 95.2 120.7 123.4 119.7 118.4 131.8 128.6
Sudan 27.0 13.0 10.0 14.0 14.0 26.0 26.0 24.0 32.0 62.0
53
Financial Stability Indicators: Second Group (concluded)
Return on Assets
Return on Equity
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Egypt 0.6 0.8 0.9 0.8 0.8 1.0 0.8 1.0 1.0
Jordan 2.0 1.7 1.6 1.4 1.1 1.1 1.1 1.1 1.2 0.7
Lebanon 1.0 1.1 1.1 1.2 1.1 1.0 1.0 1.0
Morocco 0.5 1.3 1.5 1.2 1.2 1.2 1.1 1.0 1.0 1.1
Palestine 1.6 1.8 2.1 1.9 1.8 1.9 1.7
Sudan* 3.0 4.0 4.0 4.0 4.0 4.0 4.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Egypt 10.2 14.3 15.6 14.1 13.0 14.3 11.7 13.9 14.5
Jordan 20.9 15.0 12.6 11.5 8.8 8.8 8.3 8.6 9.9 5.8
Lebanon 12.1 13.8 14.3 17.1 14.5 12.8 11.7 11.2
Morocco 6.3 17.4 20.6 16.7 15.2 14.2 13.4 11.8 10.6 12.0
Palestine 21.4 20.3 21.1 17.0 16.2 18.7 17.2
Sudan* 27.0 28.0 36.0 30.0 13.0
54
Financial Stability Indicators: Third Group
Capital Adequacy Ratio
NPLs to Loans
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Libya
Iraq 29.5 33.4 31.4 28.0 26.0 31.0 30.0 28.0 33.0 28.4
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Libya
Iraq 15.6 10.6 9.7 6.5 5.9 2.8 3.0 2.2 8.1 8.4
55
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