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November 30, 2009
Dubai : What Next?
So, its there for all to see - free fall of Dubai and Abu Dhabi index, investor sentiment turning adverse reflected in higher risk premium and the prospect that Dubai may face a major jolt in its aspirations to become a global financial hub. Real estate prices are predicted to fall by 20-30 per cent more. To add to all this, the region as a whole may face a setback just when it was coming out of an inactive first half of 2009. And all of this for a potential debt default which the Central Bank of UAE has vowed to defend in a belated yet notable communication. Why all ths , if the debt can be defended, if other Emirates are willing to come with rescue packages. Wasn't this crisis unavoidable?
In my view, this was an avoidable crisis. To avoid such embarrasments in future, certain actions, in my view, are necessary on part of players and regulators in the market. Let me jot them down one by one-
1. Risk Management must Replace Crisis Management in Financial Institutions : In a volatile global financial market, robust Risk Management Framework must be in place to prepare entities for crisis.
2. Greater focus on Systemic Risks : Central Banks must get into more research and action plans to contain financial risks. The Financial Stability Units must be strengthened asnd the FS unit and Supervision Units must work closely.
3. Speed of Regulatory Intervention must increase. Regulators must act fast, any delay can cost a lot in reputationasl damages and the spread of contagion. For this, off site surveillance must get hard data and a framework that enables quick analysis of data. Online data flow from financial institution to central bank is much needed in the region. Greater transperancy is also desirable.
4. The Central Bank should , in my view, actively promote the establishment of robust risk management practices in regulated entites.
5. Board and Senior Management awareness on risk issues must grow. And they should continuously assess risks as and when they arise . No point in waiting for the quarterly Board meetings.
6. Risk must find its alignment with Strategy. Risk must shed its role of compliance, but must act as a business partner to promote long term sustainable growth.
7. More focus should be towards measurinfg and monitoring risk appetite, something that contributes to risky behaviour in the first place.
All the above steps are much needed - be it in Dubai, Doha, Delhi or Dublin. Or else, we will see more crisis management like the present one.
Posted by sunandoroy at November 30, 2009 09:53 AM
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