UAE’s banking system is robust and can withstand severe shocks: Central Bank report

Abu Dhabi: Banks in the United Arab Emirates have sufficient capital and liquidity buffer to withstand severe shocks, the Central Bank said in a report on Thursday.

The banking system also has a robust payment system that has kept pace with the rapid digitalization of the financial services industry and withstood cyber resilience tests.

In issuing the Financial Stability Report, the Central Bank outlined the measures it has taken to support the national economy during the Covid pandemic, including the gradual exit from the Targeted Economic Support Program (TESS). The first phase was completed by the end of 2021 and the second phase was completed by the end of June 2022. The Central Bank will maintain the third final phase of the TESS measures during the second half of 2022.

The regulator also carried out risk-based supervision and solvency and liquidity stress tests to assess potential vulnerabilities, which indicated that the country’s banking system remained sound.

The report also outlines risks to the banking system, stemming from potential deterioration in asset quality and insufficient change in banks’ business models in light of global digital transformation, climate change and increasing security requirements. governance.

Khaled Mohamed Balama, Governor of the Central Bank of the United Arab Emirates, said: “The Financial Stability Report reflects CBUAE’s approach to identifying and mitigating potential systemic risks and safeguarding the stability and resilience of the sector. financier of the United Arab Emirates. The report predicts a positive outlook for the country’s economy and financial system in 2022.

“The global macro-financial outlook could, however, be affected by supply chain disruptions, growing inflationary pressures and further escalation in geopolitical tensions. We will continue to monitor developments in global vulnerabilities closely and stand ready. to take further action if necessary.

“CBUAE’s vision is to become one of the world’s leading central banks by improving monetary and financial stability and supporting the competitiveness of the UAE. We share this determination with the leaders of the United Arab Emirates and licensed financial institutions, and together we are implementing an ambitious transformation strategy to achieve this.”

Growth forecasts

The UAE’s overall real GDP grew by 3.8% in 2021, compared to a decline of 4.8% in 2020, the UAE Central Bank said. Overall GDP growth was due to a 5.3% increase in real non-oil GDP, pulled down slightly by the decline in real oil GDP. The Central Bank expects real GDP growth to increase further to 5.4% in 2022, supported by higher economic activity and higher oil prices, with non-oil GDP growing by 4.3% while forecasts growth rate for 2023 for aggregate real GDP and real non-oil GDP is 4.2% and 3.9%, respectively.

The TESS program

The Central Bank has implemented comprehensive broad-based measures under the Targeted Economic Support Program (TESS) to mitigate the financial and economic repercussions of the pandemic. TESS has helped cushion the negative impact of the pandemic and facilitate economic recovery throughout 2021.

It eased liquidity and funding pressures and anticipated the unwarranted deterioration in asset quality due to temporary cash flow constraints of affected household and corporate borrowers.

Exit strategy

As the economy recovered, the focus of TESS shifted from managing the crisis to gradually winding down the regime while supporting a sustained economic recovery.

The first phase of the exit strategy focused on the gradual unwinding of the TESS deferral program, which was reduced to 50% by September 30, 2021 and fully phased out by December 31, 2021.

The second liquidation phase ended on June 30, 2022. The final phase of the program is expected to end in December.

The TESS program has benefited over 322,000 bank customers affected by the pandemic, covering retail, SME and corporate borrowers. The program supported up to 15% of total bank lending/financing at the height of the pandemic.

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