UAE Central Bank finds the banking sector resilient in its report on financial stability in 2020

Dubai: Key solvency and liquidity indicators show that the UAE’s financial system has remained strong amid the COVID-19 pandemic, according to the Central Bank’s Financial Stability Report (FSR) for 2020. CBUAE predicts that the UAE economy is expected to gradually recover from the effects of the pandemic during 2021 and 2022. GDP in the United Arab Emirates is expected to grow by 2.4 percent in 2021 and by 3.8 percent in 2022, and GDP outside oil 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 mitigating risks by ensuring continued credit flow, and helped affected people and companies with temporary debt repayment problems. During 2020, the Bank closely monitored the quality of assets and the growth of lending. The financial stability report shows that the UAE banking sector remains resilient, with sustained borrowing capacity.

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“CBUAE has worked tirelessly to ensure that key sectors of the country’s economy are able to withstand this crisis,” said Governor Khaled Mohamed Balama. “CBUAE’s launch of the Targeted Economic Support Scheme has the right to time has come to ensure that banks can alleviate financing and liquidity pressures and maintain their lending capacity. ” 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 conducted regular solvency and liquidity stress tests from below, using hypothetical adverse scenarios at different stages of the COVID-19 crisis. The stress tests indicated that the UAE banking system has solid capital and liquidity buffers to withstand significant shocks. “Our support continues as most of the support measures provided by CBUAE will remain until 2021,” Balama said. ‘Together with the UAE’s financial sector, we pave the way for gradual economic recovery and remain vigilant against the challenges ahead as we continue to maintain the UAE’s financial and monetary stability. ” A separate section of the report is devoted to climate risk, which is at the forefront of regulatory focus. It is important for the UAE banks to consider integrating climate change risk into their lending and operational processes. Detailed information on 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. This highlights the increased 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.