UAE starts gradual withdrawal of crises measures

      The central bank of the United Arab Emirates (UAE) said it is starting a "gradual and well-calibrated" withdrawal of extraordinary stimulus measures taken last year during the height of the COVID-19 pandemic to avoid restricting credit supply and economic growth.

     "Our assessment, confirmed by recent economic data, affirms the UAE economy's gradual recovery," Khaled Mohamed Balama, governor of the Central Bank of the UAE (CBUAE) said in a statement.

     "As we enter the next phase of the post-COVID recovery, there will be less need for extraordinary stimulus measures," he added on Sept. 23.

       Last year CBUAE, as other central banks, cut its main interest rates and undertook various measures to ensure the flow of liquidity to the banking system and to support economic activity.

       CBUAE grouped its different measures - such as financing for loan deferrals and zero-cost liquidity -under a Targeted Economic Support Scheme (TESS).

       In April the central bank extended key parts of TESS until mid-2022, including allowing banks to access a zero-cost liquidity facility up to June 30, 2022 to provide new loans and financing to those most affected by the pandemic.

       It also extended financing for loan deferrals until the end of 2021 but will phase out the outstanding financing by Dec. 31, 2021.

      Today CBUAE said 15 percent of banks' loan portfolios had benefitted from the loan deferral program and confirmed the program would be phased out by the end of this year.

       It also confirmed that in the short term it would maintain the temporarily lowered reserve requirements for banks and the level of loan-to-value ratio on mortgage loans for first-time home buyers.

       CBUAE previously decided regulatory measures that allow banks to maintain lower capital and liquidity buffers will expire by the end of this year but said today is was looking at extending these for a limited period to facilitate a smooth economic recovery.

      UAE groups seven emirates, including Abu Dhabi and Dubai, and its oil and natural gas reserves are the 6th and 7th largest in the world, respectively.

      

      The Central Bank of the UAE (CBUAE) issued the following statement:

During its meeting with the chief executive officers of banks

CBUAE committed to supporting continued economic recovery and confirms withdrawal of support measures will be gradual and well-timed

Abu Dhabi (23 September 2021): His Excellency Khaled Mohamed Balama, Governor of the Central Bank of the UAE (CBUAE), held a meeting with the Chief Executive Officers (CEOs) of selected national and foreign banks operating in the UAE on Tuesday 21 September, in the presence of H.E Abdulaziz Al-Ghurair, Chairman of the UAE Banks Federation. The discussion focused on the CBUAE’s assessment of financial stability in the UAE, and the CBUAE’s plans regarding the gradual withdrawal of its extraordinary support measures.

Supported by the ongoing economic recovery, the CBUAE assessed the UAE’s financial system as stable. Liquidity in the banking system and banks’ capital buffers remained adequate. The Governor informed that the CBUAE will continue to closely supervise banks’ asset quality and the adequacy of provisioning.

In view of the gradual increase in economic activity, the CBUAE is starting a gradual and well-calibrated withdrawal of its Targeted Economic Support Scheme (TESS) to avoid restricting credit supply and economic growth. The participants agreed that the TESS programme had been effective in meeting its objective of mitigating the adverse effects of the COVID-19 pandemic on the UAE’s economy. Fifteen percent of the UAE banks’ loan portfolio had benefitted from the TESS deferral programme.

The CBUAE also confirmed, that in the short term, it will leave unchanged the temporarily lowered reserve requirements for banks, and the level of the loan-to-value ratio applicable to mortgage loans for first-time home-buyers.

The CBUAE has already announced that the loan deferral component of the TESS programme will expire by the end of the 2021, but the CBUAE’s zero cost lending facility may be used to grant new loans until mid-2022.

The CBUAE announced previously that its regulatory relief measures that allowed banks to maintain lower capital and liquidity buffers will expire by the end of 2021. The CBUAE is closely monitoring economic recovery and loan demand, however, and is looking at extending these measures for a limited period to facilitate a smooth economic recovery.

H.E. Khaled Mohamed Balama, Governor of the CBUAE, said: “Our assessment, confirmed by recent economic data, affirms the UAE economy’s gradual recovery. As we enter the next phase of the post-COVID recovery, there will be less need for extraordinary relief measures. We expect that banks will do their part in supporting our economic recovery and ensure the continued flow of funds to creditworthy retail and corporate borrowers.”

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