UAE banking system has sufficient capitalisation and liquidity reserves, says Central Bank

A new report from the UAE's Central Bank found that lending growth slowed during 2018 when compared to the previous year
UAE banking system has sufficient capitalisation and liquidity reserves, says Central Bank
Retail sector lending was found to have remained largely stagnant, and the non-performing loans ratio increased slightly during 2018, according to the UAE Central Bank.
By Bernd Debusmann Jr
Tue 09 Jul 2019 10:00 AM

The UAE Banking system remains sound with sufficient capitalisation and liquidity reserves, solid financial performance and high operating efficiency, according to the Central Bank of the UAE’s 2018 Financial Stability Report (FSR).

According to the report, the UAE economy’s macroeconomic growth and outlook stabilised during 2018, bolstered by improved average oil prices, an increasingly proactive fiscal strategy, new structural reform initiatives, stable financial markets and reforms that benefit fiscal diversification and sustainability.

Strong financial performance and operating efficiency was reflected in rising new profits and lower cost-to-income ratio of the overall banking system, the report noted.

The report added that bank lending growth during 2018 relative to the slow growth of the year before, driven by corporate sector lending.

Stagnant

In contrast, retail sector lending was found to have remained largely stagnant. While the non-performing loans ratio increased slightly during 2018, the specific provision coverage also improved. Because of this, the resulting un-provisioned part of non-performing loans was found to have decreased.

Throughout 2018, the number and total assets of finance companies operating from the UAE fell.

UAE finance companies were also found to have diverged in terms of performance and asset quality. Overall, the sector remained small relative to the asset-size of the banking system, with limited potential to transmit risk to the country’s wider financial system.  

“Looking at our achievements in 2018, an important milestone for us was the issuance of the Decretal Federal Law No. (14) of 2018 regading the Central Bank and Organisation of Financial Institutions and Activities,” said CBUAE Governor Mubarak Rashed Al Mansoori.

“The new law defines the contribution to the stability of the financial system as one of the principal objectives of the Central Bank,” he added. “Also, in 2018, we internally at CBUAE established the Financial Stability Policy Committee (FSPC), which facilitates the thorough fulfilment of this objective.”

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