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The Central Bank of the UAE has approved a set of recovery measures aimed at stabilizing the banking sector amid ongoing conflicts in the Middle East.
According to the board of the CBUAE, this initiative seeks to bolster the UAE’s banking sector “given the exceptional global and regional conditions,” as reported by state news agency Wam.
The new package will grant banks access to liquidity and allow them to use capital buffers to support the economy.
This strategy is supported by the CBUAE’s foreign exchange reserves, which exceed 1 trillion dirhams (around $270 billion). The regulator reassured the public about the solid fundamentals of the AED 5.4 trillion banking sector.
Sheikh Mansour bin Zayed, who holds several high-ranking positions including Vice President and Chairman of the CBUAE Board of Governors, mentioned that the CBUAE’s proactive measures have consistently shown effectiveness in ensuring the banking sector’s resilience and stability.
He added that these developments reflect ongoing confidence in the UAE’s financial system and its competitive standing in the global economy.
Recovery package details
The five-pillar recovery initiative encompasses various strategies: monetary policy reforms, liquidity and capital relief, credit risk management, and additional measures for lenders.
This plan will enhance domestic banks’ access to reserves—up to 30% of their cash reserve requirements—with liquidity facilities available in both dirhams and dollars.
Temporary liquidity relief and stable funding ratios will provide banks with the flexibility necessary to support the economy effectively.
Moreover, the initiatives include temporarily lifting the countercyclical capital buffer, a tool designed to protect banks from future losses, along with relaxing the capital conservation buffer, which is a regulatory requirement related to capital reserves.
The credit risk management aspect allows banks to delay classifying personal and corporate loans for customers impacted by the current crisis.
In light of these exceptional circumstances, banks have been directed to continue providing essential lending services to support their clients and the national economy.
“The banking system remains robust,” commented Daniel Richards, Mena economist at Emirates NBD, noting that banks hold around Dh920 billion in liquidity at the central bank.
He also pointed out that reserve balances exceed AED 400 billion, which serves as a significant buffer against market stress.
Continued support
The CBUAE reaffirmed its willingness to “utilize the necessary policy tools” to ensure the stability of the financial system.
The regulator expressed its commitment to not only maintain but further strengthen the financial sector’s contribution to the national vision and overall competitiveness.
Historically, the central bank has intervened during times of crisis to reinforce the financial system.
For instance, in March 2020, amid the pandemic’s peak, the CBUAE implemented a Dh100 billion economic support plan.
This initiative provided financial resources to banks, allowing them to postpone principal and interest payments for up to six months for affected private sector and individual borrowers.
The plan also included AED 50 billion in zero-interest secured loans to support all financial entities operating within the UAE.
Additionally, the regulator’s reduction in capital buffers further enhanced banks’ lending abilities, freeing up an extra 50 billion dirhams at that time.
