Sweeping Change: The UAE’s New Central Bank Governor

After two long decades in service, the UAE’s central bank governor Sultan Nasser Al Suweidi has stepped down from his position, passing the baton to a much younger successor.

In September, Mubarak Rashid al Mansouri was appointed as the new central bank governor for a four-year term through a presidential decree. The change, announced through the state news agency, comes less than two years after an Abu Dhabi banker, Khalifa Mohammed al-Kindi, became the new central bank chairman in November 2012.

Mansouri is a top tier executive in the country’s financial sector, currently heading the Emirates Investment Authority (EIA), a federal investment fund that has an estimated $15 billion worth of assets. He also sits on the board of the stock market regulator the securities and commodities authority, Abu Dhabi-based telecom operator etisalat, Abu Dhabi Securities Exchange and various other Abu Dhabi entities.

Previously, he worked at the Abu Dhabi Retirement Pensions and Benefits fund and Abu Dhabi Holding and National Central Cooling company.

Mansouri, who received a Masters in Business Administration from the University of West Florida, has served as a board member at the central bank too.

Although it is still early to gauge the impact the new governor will have on the country’s banking sector, analysts have said that it is a positive move.

“He should bring in some fresh perspectives … and I think that will be helpful. I’m not able to say that it would bring in positive changes for sure but my first impression is that the new appointment is a positive development,” said shabbir Malik, an analyst at the egypt-based investment bank efg Hermes.

“It will definitely bring new energy into the central bank. But how that will translate into new regulations, is difficult to assess at this point.”

Malik pointed out that Mansouri’s term as board member could come in handy as he takes the range at the central bank.

“As he’s been on the board of central bank for a while, he would already know the day-to-day working of the bank. His background is very similar to that of the previous governor – both of them are very close to Abu Dhabi, so my view would be that the governor would have a conservative mindset reflecting Abu Dhabi government’s view of the economy or the monetary policy.”

The central bank governor’s duties would include managing the institution’s day-to-day operations and representing it at international events. But the bank’s chairman has the final say on policy decisions.

Nevertheless, analysts expect that the new governor could bring in some changes to the local banking sector.

“The new governor will likely be walking into an environment of industry confidence,” said M.R. Raghu, SVP, research at the Kuwait-based investment firm Kuwait Financial Centre (Markaz).

“While the aftermath years of global financial crisis was mainly spent on recovery and stability, looking forward we can focus on modernisation of the UAE banking sector through protection of customer rights, encouragement for Islamic-banking and SMEs, supporting the private sector better, and through better grievance management processes that drive the agenda of workforce nationalisation as per the strategic objectives of the UAE government.”

REFORMS

Suweidi, whose term expired in July 2012, played a key role in helping the UAE weather the economic crisis by introducing regulation such as the mortgage caps.

Raghu said that continuing to strengthen regulation to bring it in line with international best practices should be the new governor’s priority.

While mortgage-lending rules, retail lending regulations, and the credit bureau are already in place, Malik said he expected to see a progress in the implementation of new liquidity regulations.

“Back in 2012, the central bank wanted to implement new liquidity regulations. I think they were put on a back burner because there were no ample government securities for the banks to invest in.

“The federal government in the UAE does not issue bonds, which banks can invest in. So we could see a modified version of liquidity regulations which takes in to account the characteristics of the UAE economy or we could see the bond market developing in the UAE, but that will be tied with the Ministry of Finance. The central bank by itself cannot go in that direction.”

But as the UAE’s banking sector rebounds with a rise in economic activity, analysts suggest that the new governor will face challenges in regulating growth in the market.

“The objective is to ensure the growth of the nation’s economy in a balanced manner. That is where the greatest challenge could lie as the rebound becomes stronger,” said Raghu.

“Over recent years, there have been efforts to curb irresponsible use of mortgage loans and for limiting heavy exposure to speculative sectors like real estate. As the economy and the bank’s revival continue, there might be the tendency to revert back to more risky lending practices. Curbing such tendencies and keeping the balance sheet clean of heavy non-performing loans are some of the key day-to-day challenges.”

Malik said that both the governor and the central bank need to ensure that the credit risk is well diversified across economic sectors.

“The bank should make sure that the leverage does not build up beyond reasonable levels in cyclical sectors such as construction and real estate, and monitor the liquidity of the system and capital levels of the banks so that the stress can be minimised when the economic cycle turns.”

But analysts suggest, there is little scope for the appointment to majorly impact policy changes in the UAE.

“It does not look like the new appointment, by itself, will serve as a catalyst for a paradigm shift in regulatory policies. Also, the currency peg to the US dollar means that monetary policies have to operate within a band of already charted territory. What the new governor could do is bring more vitality and urgency to the ongoing regulatory reforms’ climate,” said Raghu.

“Long term fundamentals are likely to dictate policy imperatives, for which, the governor is expected to have support from all key stakeholders.”