For the purpose of this section, and in order to simplify technical considerations, both interest rate risk (for conventional products) and profit rate risk (for Islamic products) will be referred to as Interest Rate Risk in the Banking Book (“IRRBB”). Both lead to a similar structural risk on institutions’ balance sheet.
6.1.2
Institutions should implement models to address the requirements articulated in “Interest rate and rate of return risk in the banking book Standards” issued by the CBUAE in 2018 (notice 165/2018), hereby referred to as the “CBUAE Standards on IRRBB”. In addition to the CBUAE Standards, institutions should refer to the Standards articulated by the Basel Committee on Banking Supervision in April 2016: “Interest rate risk in the banking book”, hereby referred as the “Basel Standards on IRRBB”.
6.1.3
According to the CBUAE Standards on IRRBB, interest rate risk should be captured through changes in both (i) expected earnings and (ii) the economic value of the balance sheet. In order to ensure more homogeneity in the methodology employed by institutions across the UAE, the MMG hereby presents some guidance on IRRBB modelling. The IRRBB requirements related to governance, management, hedging and reporting are covered in a separate CBUAE Standards on IRRBB.