61.Interest rate risk in the banking book is a potentially significant risk that requires capital. There is considerable heterogeneity across UAE banks in terms of the nature of the underlying risk and the processes for monitoring and managing it. In light of this, the Central Bank considers it is most appropriate to treat interest rate risk in the banking book under Pillar 2 of the Framework.

62.To facilitate the Central Bank’s monitoring of interest rate risk exposures across banks, banks would have to provide the results of their internal measurement systems, expressed in terms of both, economic value and net interest income, relative to capital, using a standardised interest rate shock as described in the accompanying guidance document.

63.If the Central Bank determines that banks are not holding capital commensurate with the level of interest rate risk, they must require the bank to reduce its risk, to hold a specific additional amount of capital or some combination of the two.