UAE banking sector remains resilient amid pandemic; Central bank

By Shilpa Annie Joseph, Official Reporter
  • Follow author on
Representational Image

According to the results of the Central Bank of UAE’s latest Financial Stability Report (FSR), the UAE banking system remains resilient despite a challenging operating environment caused by the COVID-19 pandemic.

The Financial Stability Report gives a comprehensive overview of the development of the UAE economy and financial system in 2020.

As per the report, the core banking indicators showed sufficient financing and liquidity, as well as continued lending capability. However, the vulnerability of the banking sector remained as the economic slowdown weighed on asset quality.

The effects of the pandemic resulted in banks’ higher impairment charges, lower operating income, and reduced profitability. The aggregate capital and liquidity buffers remain well above the regulatory requirements. The UAE banking system entered the pandemic from a strong position, allowing banks to offer targeted relief measures to affected customers.

According to the FSR, “Financial soundness indicators reflected the overall resilient position of the UAE banking system, underpinned by adequate capital and liquidity buffers, which were sustained during the pandemic. Nevertheless, uncertainty remains with regards to the pace of the economic recovery and related asset quality pressures.”

In 2020, the UAE banking system’s assets increased by 3.4 percent to $871 billion (Dh3.2 trillion). The aggregate loan growth remained positive in 2020, at 1.2 percent year-on-year, despite the economic downturn. The lending growth moderated at yearend due to loan portfolio rebalancing and corporate loan repayments.

HE Khaled Mohamed Balama
HE Khaled Mohamed Balama
Governor – CBUAE

“In line with the UAE’s robust mitigation measures, including a swift rollout of COVID-19 vaccines, CBUAE has worked tirelessly to ensure that vital sectors of the nation’s economy are able to withstand this crisis. CBUAE’s introduction of the Targeted Economic Support Scheme came at the right time, ensuring that banks could mitigate funding and liquidity pressures and maintain their lending capacity, resulting in the provision of necessary aid to individuals and corporates alike.”

“Our support is ongoing as most support measures provided by CBUAE will remain in place through 2021. Together with the UAE financial sector, we pave the way for gradual economic recovery and remain vigilant towards the challenges ahead, as we continue to uphold the UAE’s financial and monetary stability,” Mr. Balama added.

The report highlights the importance of adequate management of risks associated with new technologies and increased competition from innovative market entrants. The continued focus on those risks is important as the UAE strengthens its role as the largest FinTech hub in the Middle East.

Furthermore, the FSR also covers the other key sectors of the UAE financial market, such as the insurance sector, finance companies, exchange houses, and capital markets.

Related: Central Bank of UAE raises base rate by 5 basis points