CBUAE Interest Rate and Rate of Return Risk in the Banking Book Standards

CONTENTS

INTRODUCTION...2

Article 1: Definitions...2

Article 2: Risk Governance Framework...4

Article 3: Risk Management Function...5

Article 4: Interest Rate Risk Measurement and Use of Models...6

Article 5: Stress Testing...6

Article 6: Information Systems and Internal Reporting...7

Article 7: Reporting Requirements...7

Article 8: Islamic Banking...7

INTRODUCTION

1. These Standards form part of the Interest Rate and Rate of Return Risk in the Banking Book (IRRBB) Regulation. All Banks must comply with these Standards, which expand on the Regulation. These Standards are mandatory and enforceable in the same manner as the Regulation.
2. Banks offering Islamic financial services must apply the same principles to address rate of return risk.
3. IRRBB is a normal part of banking and can be an important source of profitability and shareholder value to a bank. However, excessive IRRBB can pose a significant threat to a Bank's earnings and capital base. Changes in interest rates affect a Bank's earnings by changing its net interest income and the level of other interest-sensitive income and operating e...