UAE Central Bank committed to recovery and gradual withdrawal of support measures

Regulator's targeted economic support scheme benefited 15 per cent of UAE banks' loan portfolios

The front lobby of the Central Bank of the United Arab Emirates. Ryan Carter / The National

The Central Bank of the United Arab Emirates is committed to supporting the country's continued economic recovery and said the withdrawal of support measures put in place to mitigate the effects of the Covid-19 pandemic will be gradual and well timed.

In a statement on Thursday, the CBUAE said it had assessed the UAE’s financial system as stable and that liquidity in the banking system and banks’ capital buffers were adequate.

After a meeting on September 21 with chief executives of selected national and foreign banks operating in the UAE, which was attended by Abdul Aziz Al Ghurair, the chairman of the UAE Banks Federation, CBUAE governor Khaled Balama said the central bank will continue to closely supervise banks’ asset quality and the adequacy of provisioning.

The regulator said in view of the gradual increase in economic activity, it will start a "gradual and well-calibrated withdrawal" of its targeted economic support scheme (Tess) to avoid restricting credit supply and economic growth".

The UAE introduced economic stimulus worth Dh388 billion ($105.72bn) since the pandemic tipped the world economy into its worst recession since the 1930s. These packages include Dh50bn under the central bank's Tess programme to boost liquidity in the financial and banking sector, parts of which have been extended to June 2022.

The central bank said bank chief executives agreed that the Tess programme had been effective and met its objective of cushioning the effects of the pandemic on the UAE’s economy. Fifteen per cent of the UAE banks’ loan portfolios had benefited from the Tess deferral programme, it said.

The UAE economy, which contracted 6.1 per cent in 2020 on the back of the global economic slowdown, has bounced back strongly, boosted by fiscal support and other measures from the government.

The UAE economy is now forecast to grow 2.1 per cent this year, driven by pandemic-mitigation measures that boosted recovery from the coronavirus-driven slowdown, according to the CBUAE's second quarter review. The Arab world’s second-largest economy is expected to grow at 4.2 per cent in 2022, higher than the 3.8 per cent previously forecast.

"Our assessment, confirmed by recent economic data, affirms the UAE economy’s gradual recovery," Mr Balama said in the statement on Thursday.

"As we enter the next phase of the post-Covid recovery, there will be less need for extraordinary relief measures. We expect that banks will do their part in supporting our economic recovery and ensure the continued flow of funds to creditworthy retail and corporate borrowers.”

On Wednesday, US Federal Reserve chair Jerome Powell said the central bank, whose monetary policy is mirrored by most countries in the GCC, could begin scaling back asset purchases as soon as November and also indicated the Fed would aim to finish its bond buying by the middle of 2022. Since July 2021, the Fed was buying $80bn of Treasury securities and $40bn of agency mortgage-backed securities each month.

In the short term, the CBUAE said it will leave unchanged the temporarily lowered reserve requirements for banks, and the level of the loan-to-value ratio applicable to mortgage loans for first-time home buyers.

The CBUAE had already said the loan deferral component of the Tess programme will expire by the end of 2021, but its zero-cost lending facility may be used to grant new loans until mid-2022.

Regulatory relief measures that allowed banks to maintain lower capital and liquidity buffers will expire by the end of 2021, as previously communicated by the CBUAE.

The central bank said it is closely monitoring the economic recovery in parallel with loan demand and may extend these measures for a limited period to "facilitate a smooth economic recovery".