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UAE Central Bank finds the banking sector resilient in its new financial stability report

Dubai: Major solvency and liquidity indicators showing the resilience of the UAE’s financial system amid the COVID-19 pandemic have remained robust, according to the UAE Central Bank’s Financial Stability Report (FSB) for the year 2020 . The report provides a comprehensive overview of the development of the UAE economy and financial system in 2020. CBUAE projects that the UAE economy is expected to recover during 2021 and 2022 following the effects of the COVID-19 pandemic. CBUAE expects the United Arab Emirates’ GDP to grow by 2.4 percent in 2021 and 3.8 percent in 2022, and that non-oil GDP will expand by about 4 percent in both years.

TESS mitigation risks

According to the findings of CBUAE, the Targeted Economic Support Scheme (TESS) was effective in reducing the risks of the pandemic by ensuring continued credit flow and helping individuals and companies affected by the effects of COVID-19 to address temporary problems. with the repayment of debt. . During 2020, the CBUAE closely monitored developments in the banking sector, particularly asset quality and the growth of lending. CBUAE’s financial stability report shows that the UAE banking sector remains resilient, with sustained lending capacity.

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“CBUAE has worked tirelessly to ensure that important sectors of the country’s economy are able to withstand this crisis. CBUAE’s launch of the Targeted Economic Support Scheme came at the right time and ensured that banks could ease funding and liquidity pressures and maintain their lending capacity, providing the necessary assistance to individuals and businesses, ”said Khaled Mohamed Balama, Governor of the Central Bank of the UAE. The effects of the pandemic led to higher bank costs, lower operating income and lower profitability. The total capital and liquidity buffers remain well above the regulatory requirements.

Stress tests

CBUAE said it conducted regular top-down solvency and liquidity stress tests using a number of hypothetical adverse scenarios at different stages of the COVID-19 crisis. The stress test results indicated that the UAE banking system has solid capital and liquidity buffers to withstand the significant hypothetical shocks. “Our support continues, as most of the support measures provided by CBUAE will remain until 2021. “Together with the financial sector of the UAE, we are paving the way for gradual economic recovery and remain vigilant for the challenges ahead, while still maintaining the UAE’s financial and monetary stability,” said Balama. A separate section of the report is devoted to climate risk, which is at the forefront of regulatory focus worldwide and in the UAE. The financial stability report emphasizes the importance of the UAE banks considering integrating the risk of climate change into their lending and operating processes. Detailed information on the payment systems operated by the CBUAE is also included in the report, as well as the benefits and risks of new technologies and cyber security. The report emphasizes the importance of adequately managing risks associated with new technologies and increasing competition from innovative market entrants. Continued focus on risks is important as the UAE strengthens its role as the largest FinTech hub in the Middle East. The financial stability report also covers the other key sectors of the UAE financial market, such as the insurance sector, finance companies, exchanges and capital markets.