Central Bank: UAE Banks Remained Stronger with Surplus Liquidity and Capital Reserves

  • The UAE regulatory body Central Bank stated in its latest financial stability report that UAE banks are resilient towards potential macro-financial instability risks.
  • According to a financial stability report released as according to Central Bank of the UAE (CBUAE), the banking system continues to remain stronger in UAE with surplus capital base and liquidity reserves, thus, performing efficiently last fiscal year and current scenario amidst building up a healthy macro-economic condition and a proactive budgetary strategy.

As stated by CBUAE in its 2018’s Financial Stability report and the concluded regulatory stress test on the banking system, the second-largest in the six-member economic bloc of the GCC, has witnessed that it also remains tougher to overcome issues like global and regional potential macro-financial risks.

The banking regulatory board of UAE, in its report stated previous weekday, also added that, “UAE’s banking system has always remained well off capitalized with the capital ratios well above the minimum regulatory requirements and that all its funding, as well as liquidity indicators, echoed substantial surplus liquidity buffers, funding conditions with key stable funding metrics improving further during the year.

It also added that “A better and strong performance with rising operating efficiency was thus, reflected in the rising stabilized overall net profits (As aggregated on UAE Banks), as well lowering the cost-to-income ratio of the overall support banking system in UAE.”

The report administered a close banking system assessment, as well as restrictive stress testing macro-financial conditions and alternative aspects relevant to the monetary stability of the UAE.

It follows in lieu with the issuance of Decretal Federal Law No. 14 previous year relating to the central bank and financial organization as well as the monetary establishments and keeping watchful eye on their activities.

The legislation reinforces the CBUAE’s role and restrictive powers and helps it with effective oversight of the economic system within the country.

“The law further demonstrates their overall commitment to the steadiness of the economic system,” Mubarak Rashed Al Mansoori, Governor of CBUAE, stated in a separate statement on Monday.

“Also, in 2018, they had established the Financial Stability Policy Committee, that facilitates the thorough fulfillment of this objective,” he added further.

The banking and economic system within the country round-faced headwinds throughout the three-year oil price slump that saw crude costs decline from the mid-2014 peak of $115 per barrel to below $30 per barrel in the first quarter of 2016.

Banks within the country struggled to take care of loaning and gain growth as margins came struggling on the rear of a decelerating economy.

The price of oil has since recovered to hover higher than $60 per barrel once breaching $80 mark within the last quarter of 2018. This steadiness in oil costs and therefore the measures each on the federal and emirate level, as well as Abu Dhabi’s Dh50 billion three-year economic stimulation package, have helped maintain economic momentum since the slump.

Lenders within the country reported trust and have sustained profit growth in recent quarters as margins improved.

The banking regulator also projected the expansion to furthermore accelerate in 2019, reaching 2 percent growth. An increase in defrayment on comes as well as preparations for the Expo 2020 in Dubai and federal steps to stimulate private sector economy, like the relaxation of foreign possession necessities and a few visa policies, can support the economic process, it noted.

Bank loaning in 2018 improved from the previous year earlier, driven by company sector finance deals. Retail sector loaning, however, remained stagnant and additionally the non-performing loans magnitude relation slightly raised throughout 2018 because the specific provision coverage also improved within the system.

The CBUAE additionally increased the restrictive framework for the UAE banks, as well as the implementation of restrictive Basel III necessities on capital, risk management, controls and compliance and issuance of the IFRS 9 guidance protocols.

To evaluate the resilience of individual banks and therefore the banking industry as a full to potential macro-financial shocks, the CBUAE conducted its strenuous checks.

The results showed that the system remained “resilient to the considered adverse macro-financial shocks,” it noted. Although the macro-financial outlook remains satisfactory and remained supportive of monetary stability, CBUAE cautioned lenders to be “mindful of the potential world and regional macro-financial risks”.