UAE central bank to extend some support measures until June 2022

The Central Bank of the UAE is extending support measures aimed at helping lenders mitigate the effects of the Covid-19 pandemic by six months until mid-2022 to back the country's continued economic recovery.

Relief measures related to banks' capital buffers, liquidity and stable funding requirements will be extended until June 30 for all lenders operating in the UAE, the banking regulator said in a statement on Saturday. The measures are part of the targeted economic support scheme (Tess) programme that it introduced at the start of the pandemic in 2020.

"As the recovery is gaining momentum, the CBUAE has adjusted the TESS, replacing measures designed to mitigate the immediate negative effects of the pandemic with targeted steps to support the economic recovery," Khaled Balama, governor of the Central Bank of UAE, said. "The Tess programme has proven its effectiveness in supporting the UAE financial system and economy throughout the pandemic."

The UAE introduced economic stimulus worth Dh388 billion ($105.72bn) since the pandemic tipped the world economy into its worst recession since the 1930s. These packages include Dh50bn under the central bank's Tess programme to boost liquidity in the financial and banking sector.

The extended capital buffer measures include temporarily lowering the capital conservation buffer and the capital buffer for "systemically-important" domestic banks, according to the statement. Liquidity measures consist of temporary prudential relief on the liquidity coverage ratio, eligible liquid assets ratio, net stable funding ratio, and advances to stable resources ratio.

Earlier this year, the central bank said the loan repayment deferral component of the Tess programme would end on December 31, 2021, marking the first phase of its gradual exit strategy from the measures implemented during the pandemic. The Tess programme to support new lending and financing will continue until June 30, 2022.

"The CBUAE’s gradual exit strategy from the Tess balances the winding-down of Tess measures with its continued commitment to support the UAE’s recovery," the regulator said in the statement.

Further support measures introduced during the pandemic that temporarily remain in effect include the reduced cash reserves requirement and the decrease in the required down payment for new mortgage loans.

In September, the Central Bank underscored its commitment to support the country's continued economic recovery and said the withdrawal of support measures will be gradual and well timed.

The UAE’s financial system as stable and that liquidity in the banking system and banks’ capital buffers were adequate, it said at the time.

The UAE economy has bounced back strongly from the coronavirus-driven slowdown, boosted by fiscal and monetary support and other measures from the government. The Arab world’s second-largest economy is now forecast to grow 2.1 per cent this year, after contracting 6.1 per cent in 2020 as a result of the global economic slowdown.

The economy is expected to grow at 4.2 per cent in 2022, higher than the 3.8 per cent previously forecast, according to the CBUAE's second quarter review.

Earlier this month, the central bank said that the UAE's economic recovery is expected to strengthen further in 2022 and the country's banking system has the capacity to support the financial system and its growth.

The UAE’s banking assets are expected to grow by between 8 per cent and 10 per cent in 2022 as the UAE economy continues to recover from the pandemic-driven slowdown and reap the benefits of hosting Expo 2020 Dubai, Abdulaziz Al Ghurair, chairman of UAE Banks Federation said in October.