UAE banking sector in recovery track; Liquidity back to 2019-level

By Amirtha P S, Desk Reporter
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The Central Bank of the UAE (CBUAE) last day revealed that the liquidity of the UAE’s banking system has returned to pre-COVID-19 levels as the country’s economy continues to rebound from the pandemic.

Banks have now substantially reduced their use of the Targeted Economic Support Scheme (TESS), the $13.6 billion zero cost funding facility which was developed a year ago to help the lenders in the region to maintain funding flows through the economy.

“The TESS program has yielded positive impact for the UAE’s banking sector and the wider economy. The introduction of the stimulus package came at a critical juncture and ensured that banks were able to mitigate funding and liquidity pressures and maintain their lending capacity,” Abdulhamid Alahmadi, governor of the Central Bank of the UAE, said.

The central bank governor further noted that the amount banks are drawing down from the TESS program has come down to $5.9 billion, narrowing from the maximum withdrawal of about $11.9 billion in the second quarter of 2020.

The scheme is part of local and federal support packages totaling $105 billion, which has been extended to June 30 this year, Minister of Economy Abdulla bin Touq said last year.

According to CBUAE, the TESS scheme has so far benefitted over 320,000 customers including individuals, SMEs and other private corporations. Currently, there are about 175,000 customers taking advantage of the scheme, enabling them to defer loans.

Abdulhamid M. Saeed Alahmadi
Abdulhamid M. Saeed Alahmadi
Governor – CBUAE

“In tandem with the banking sector, we pave the way for the UAE’s robust economic recovery from the pandemic. Our base projection envisages recovery of the UAE economy in 2021 with real GDP increasing by 2.5 percent. CBUAE will continue to closely monitor the market and economic developments both in the UAE and globally.”

Last week, a global consultancy Alvarez & Marsal in its report stated that the economic recovery will provide a more supportive operating environment for banks in the UAE in 2021.

“We expect 2021 to be less volatile for the UAE banking sector compared to 2020. Events such as Expo and a gradual economic improvement are expected to be the key catalysts for the sector in the near term,” Asad Ahmed, Alvarez & Marsal managing director and head of Middle East financial services, said.

According to Moody’s Investors Service, the four largest banks of UAE reported a combined net profit of $6.7 billion for 2020, which is 35 percent lower when compared to the previous year. However, the capital buffers of the nation’s lenders remain strong, it added.

Related: CBUAE launches M-Bills to replace existing traditional certificates of deposit