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The Central Bank of the UAE has approved a resilience package to reinforce the stability of the banking sector against the backdrop of the war in the Middle East.
The regulator's move is aimed at supporting the UAE banking sector in “light of exceptional global and regional circumstances”, the CBUAE board said, according to state news agency Wam.
The package allows lenders to access liquidity and provides them the flexibility to use capital buffers to support the UAE economy.
The measure is backed by the CBUAE’s foreign exchange reserves of more than Dh1 trillion ($270 billion). The regulator affirmed the strong fundamentals of the country's Dh5.4 trillion banking sector.
“The CBUAE’s precautionary policies and proactive frameworks have consistently demonstrated their effectiveness in promoting the resilience and preparedness of the financial and banking sector, while ensuring monetary and financial stability,” said Sheikh Mansour bin Zayed, Vice President, Deputy Prime Minister, Chairman of the Presidential Court and Chairman of the CBUAE board.
“These achievements are a testament to the sustained confidence in our system and the global competitiveness of the UAE’s national economy.”
Five pillars
The five-pillar package covers monetary policy measures, liquidity and funding relief, capital buffer relief, credit risk management and additional support measures for lenders.
It allows banks in the country enhanced access to reserve balances up to 30 per cent of the cash reserve requirement and makes available term liquidity facilities in both dirhams and dollars.
A temporary relief in liquidity and stable funding ratios will allow banks with greater flexibility to support the economy.
The package also includes the temporary release of the Counter-cyclical Capital Buffer – a macroprudential tool that protects the banking sector from future losses and ensures lending continues during downturns – and Capital Conservation Buffer – a regulatory requirement for common equity tier 1 capital.
The credit risk management pillar of the package provides flexibility to banks to postpone the classification of individual and corporate loans for customers affected by the crisis.
In view of the extraordinary circumstances, banks have also been directed to provide the required financing services to support their customers and the national economy.
“The central bank reiterated that the banking system remains in a position of strength [and] banks hold nearly Dh920 billion in liquidity at the central bank,” Daniel Richards, Mena economist at Emirates NBD, said in a note on Wednesday.
“Reserve balances alone exceed Dh400 billion, underscoring substantial buffers against market stress.”
Continued support
The CBUAE also reiterated its readiness to “deploy necessary policy tools” to continue to protect the stability of the financial system.
“It remains committed to maintaining and further enhancing the contribution of the UAE’s financial sector to the national vision and its financial sector competitiveness,” the regulator said.
The central bank in the past has also stepped in to support the country’s financial system in times of crises.
In March 2020, at the peak of the pandemic that crippled the global economy, the CBUAE launched the Dh100 billion economic support scheme.
The measure provided funding to banks and allowed them to delay principal and interest payments for up to six months on loans to all private sector and retail borrowers affected by the pandemic.
The measures also included Dh50 billion from the CBUAE’s funds through collateralised loans at a zero interest rate to all lenders operating in the UAE.
The reduction in capital buffers by the regulator also freed up an additional Dh50 billion in banks' lending capacity at the time.
