Banks play a vital role in UAE's economic recovery, CBUAE governor says

The country's banking system is resilient despite challenges

The Central Bank of the UAE raised its base rate applicable to the Overnight Deposit Facility by 5 basis points on Thursday. Ryan Carter / The National

Banks in the UAE remain resilient despite pandemic driven-headwinds and are vital to the country’s economic recovery as they maintain a continued flow of credit to businesses and individuals, according to the country’s central bank.

"The UAE banking system remains resilient and our support measures in the form of the CBUAE's Targeted Economic Support Scheme (Tess) and other measures will remain in place until the middle of next year," Khaled Balama, governor of the Central Bank of the UAE, told a meeting of chief executives of lenders operating in the UAE.

“Against this background, we expect banks to support the economy and ensure a continued flow of funds to creditworthy retail and corporate clients.”

The regulator discussed the macroeconomic environment in the country during the meeting and assessed the financial sector's stability in the Arab world's second-largest economy, it said in a statement on Tuesday.

The UAE has introduced economic support measures worth Dh388 billion ($105.6bn) after the Covid-19 pandemic tipped the global economy into its worst recession since the 1930s. As part of this, the central bank introduced a Dh50bn Tess, which offers zero-cost collateral funding to banks.

The CBUAE will support the banking sector through different components of Tess, which was extended until June 30 next year "in the expectation that banks will continue to support the UAE’s recovery by continuing to lend to creditworthy customers", Mr Balama said.

However, bank lending has remained flat, reflecting "subdued demand and the conservative risk appetite of banks", the CBUAE said.

The chief executives also discussed the pre-requisites and critical enablers for the financial sector and how they can further support of the economy, especially during the early stages of recovery.

Last week, the regulator said the UAE's economy is expected to grow 2.4 per cent as it gradually recovers from the pandemic-induced slowdown. The non-oil economy of the Emirates is expected to expand around 4 per cent this year and next, while overall economic growth is expected to be 3.8 per cent in 2022.

"Our assessment and recent economic data point to a post-pandemic rebound of the UAE economy," Mr Balama said on Tuesday.

The CBUAE also said the financial system of the UAE is "stable", with "adequate" liquidity and capital buffers maintained by lenders that are supported by stable deposit volumes and growth in capital market funding.

It also discussed asset quality and credit conditions – areas that are subject to close monitoring by the CBUAE.

Chief executives also discussed trends in the country's real estate market and the CBUAE’s proposed framework for surveillance and supervision of real estate exposures that is aimed at addressing risks associated with lending to the sector.

Banking officials were also briefed on the continuing regulatory and supervisory initiatives by the central bank.