UAE banking system can withstand shocks of any scale, CBUAE says

Stress tests demonstrate the country's banking system is 'resilient', with liquidity buffers well above regulatory requirements

Deputy Prime Minister and Minister of Presidential Affairs, Sheikh Mansour bin Zayed, has been appointed as chairman of the Central Bank of the UAE. Ryan Carter / The National

The banking sector in the UAE is well capitalised and can withstand macro-financial shock of any scale despite the coronavirus pandemic challenges, according to the Central Bank of the UAE.

"Our stress tests demonstrate that the UAE banking sector is able to withstand macro-financial shocks of any size,"  the regulator said on Tuesday, despite the change in economic outlook globally and locally in the first quarter of the year as a result of the Covid-19 pandemic.

UAE banks are in a “resilient position”, with liquidity buffers well above regulatory requirements. UAE lenders remained profitable due to the “effectiveness and improved cost efficiency”, benefitting from recent mergers in the sector, the CBUAE said, citing its Financial Stability Report.

Based on the most recent data, the aggregate lending and deposit growth remain stable and the banking sector in the country, the second-biggest Arab economy, holds good level of liquidity and capital.

The capital adequacy ratio of 16.9 per cent as of end March 2020 and the eligible liquid asset ratio of 16.6 per cent as of end May 2020, are well in excess of the minimum regulatory requirements, the regulator said.

“The Financial Stability Report demonstrates a robust and resilient banking system in the UAE,” Abdulhamid Saeed, governor of the CBUAE, said. “The banking system proved its ability to face the consequences of Covid-19 pandemic and perform its role in supporting the economy.”

However, despite solid fundamentals, “we shall remain vigilant and take the necessary and appropriate measures to further support the UAE’s economic growth”, Mr Saaed said.

The UAE was the first country in the Middle East to roll out fiscal and monetary support, which now totals more than Dh282 billion. It includes a Dh100bn package announced on March 14, which consists a direct Dh50bn injection of funds through zero-cost collateralised loans provided by the central bank, plus a relaxation of banks' capital buffers allowing them to increase lending by another Dh50bn. Further easing of restrictions on capital and liquidity reserves subsequently increased the overall size of the CBUAE stimulus to Dh256bn.

The regulator in April said UAE lenders have tapped 60 per cent of the Dh50bn Targeted Economic Support Scheme facility to help businesses and individuals through the Covid-19 outbreak.

The CBUAE has also ordered lenders to remove requirements for small and medium-sized businesses to have a minimum account balance of Dh10,000 before opening accounts. It urged banks to speed up the length of time it took to open accounts to no longer than two days in a bid to help individuals, businesses and the country’s economy.

The regulator on Monday said it is introducing a new Overnight Deposit Facility that will allow conventional banks operating in the country to deposit their surplus liquidity at the central bank on an overnight basis.

The ODF, effective from July 12, will be "the prime facility for managing surplus liquidity in the UAE banking sector prior to the launch of the Monetary Bills Programme and shall replace issuance of one-week Certificate of Deposits", it said.