Emirates shows great strength in its financial system

Aiming to become "one of the world's leading central banks in enhancing monetary and financial stability and supporting the UAE's competitiveness", in the words of financial experts, the Central Bank of the United Arab Emirates (CBAE) has published its annual report on the UAE's financial stability assessment. The latest report focuses on the UAE's efforts to support the national economy in the context of the COVID-19 pandemic. 

The report discusses the main mechanisms developed on this occasion, such as the UAE Central Bank's gradual exit from the Targeted Economic Support Programme, which was divided into three phases: the first phase was completed by the end of 2021, the second phase by the end of June 2022 and the third phase was announced for the second half of 2022.

In addition, the ECBUA devotes a large part of its report to conducting solvency and liquidity stress tests to investigate potential vulnerabilities. At the very least, the results highlight the comfortable room for manoeuvre that the UAE has in terms of adequate capital and liquidity to withstand severe shocks. Indeed, UAE Central Bank Governor Khaled Mohamed Balama stated that "the Financial Stability Report records the CBUAE's approach to identifying and mitigating potential systemic risks and preserving the stability and resilience of the UAE's financial sector". 

Furthermore, while the risk of a potential deterioration in asset quality and insufficient change in banks' business models lead the authors of the report to outline the risks that the UAE banking system could face, the report highlights the enhancement of the Central Bank's systems, as well as its cyber resilience, against a backdrop of accelerating digitalisation of financial services. 

Finally, the report highlights the correlation between the UAE government's performance and the recovery of the country's economic activity, as the measures taken by the country's Central Bank have enabled the resilience and gradual recovery of the domestic banking and financial system.

Currently, against the backdrop of the global economic recovery and post-COVID-19 stimulus, the economic and financial projections look even better for 2022, although "the global macro financial outlook, however, could be affected by supply chain disruptions, rising inflationary pressures and escalating geopolitical tensions," the report notes. In this regard, the UAE central bank governor stresses that he and his experts "will continue to closely monitor the evolution of global vulnerabilities and stand ready to take additional measures if needed".