- Temporarily relaxes liquidity requirements
- Increases access to funding
- States no significant impact on banks’ stability
The central bank of the UAE has introduced urgent measures aimed at supporting financial institutions by temporarily relaxing liquidity requirements and broadening access to funding. This initiative comes in response to Iranian attacks on vital infrastructure that heighten the potential for stricter financial conditions.
The financial support package is designed to bolster the stability of the UAE banking sector, ensuring that banks retain access to liquidity in both dirhams and US dollars, while managing the effects of the ongoing US-Israel-Iran conflict, according to reports from the state-run Wam news agency.
This initiative is supported by more than AED1 trillion in foreign-exchange reserves held by the central bank.
The board of the central bank has indicated that there has been no significant impact on the banking sector’s health or payment systems.
UAE banks currently hold approximately AED920 billion at the central bank, including over AED400 billion in reserves. The country’s foreign reserves surpass the monetary base, reflecting a cover ratio of 119 percent, which provides the monetary authority with substantial capacity to support the banking system.
The central bank is implementing a multi-faceted strategy that permits banks to utilize up to 30 percent of their required reserves and enhances access to long-term funding in both dirhams and US dollars.
Additionally, the bank will provide temporary concessions on liquidity and stable funding ratios and will provisionally release capital buffers to support the national economy.
Furthermore, the central bank allows banks to delay the classification of loans for individuals and businesses impacted by “extraordinary circumstances” due to the regional conflict.
Lastly, the central bank emphasized that financial institutions are expected to continue offering essential financing services to support their clients and the national economy.
Sheikh Mansour bin Zayed Al Nahyan, who is the chairman of the central bank, stated that the organization’s “preventive policies and proactive frameworks have consistently shown their effectiveness in enhancing the resilience and readiness of the financial and banking sectors, while securing monetary and financial stability.”
Sheikh Mansour also holds the positions of UAE vice president and deputy prime minister.
In a recent analysis, S&P Global Ratings noted that Gulf banks could access $630 billion in liquid assets, investments, and deposits at the central bank in the event of a prolonged conflict with Iran leading to widespread customer withdrawals.
The ratings agency predicts that clients may withdraw up to $307 billion in cash deposits if the most intense period of the conflict lasts for four weeks.
“In prior crises, such as the COVID-19 pandemic, regulators implemented forbearance measures that enabled banking systems to gradually manage potential loan impairments,” S&P stated.
“We expect that regulators would employ similar strategies should a comparable crisis arise,” the ratings agency noted.
