The UAE banking system has adequate capital and liquidity buffers to withstand severe shocks, the Central Bank of the UAE (CBUAE) said on Thursday, and indicated that the final third phase of the Dh50 billion Targeted Economic Support Scheme (TESS) measures would continue during the second half of 2022.

The regulator ended the loan repayment deferral component of the Tess programme on December 31, 2021, marking its exit from the first phase of the support initiative, and completed the second phase by the end of June 2022 in line with its “gradual and well-calibrated withdrawal of the scheme” to avoid restricting credit supply and economic growth” as the UAE’s economic recovery picked up momentum.

The swift rebound of the economy was enabled through the introduction of a sweeping economic stimulus drive worth Dh388 billion, including the Dh50 billion under the Tess programme to boost liquidity in the financial and banking sector following the outbreak of the pandemic.

Projecting a positive outlook for the country’s economy and financial system in 2022, the apex bank said in its Financial Stability Report for 2021 that its measures supported the resilience and recovery of the nation’s banking system and the broader financial system to pre-pandemic levels.

The resilience of the banking sector was evident in the first half of 2022 with all major UAE banks recording strong earnings on the back of improving business confidence and conditions in spite of geopolitical challenges, global recession fears, inflation concerns, and economic slowdown of major economies.

Outlining some of the key measures it had taken to support the national economy during the Covid-19 pandemic and safeguard the stability of the financial system, the CBUAE said the response by the UAE government to the Covid-19 pandemic contributed to the rebound in overall UAE economic activity.

“The global macro-financial outlook, however, could be affected by supply chain disruptions, rising inflationary pressures, and further escalating geopolitical tensions. We will continue to monitor evolving global vulnerabilities closely and stand ready to take additional measures if needed,” Khaled Mohamed Balama, Governor of the Central Bank of the UAE, said.

“The CBUAE’s vision is to become among the top central banks globally in enhancing monetary and financial stability and supporting UAE’s competitiveness. We share this determination with the UAE leadership and licensed financial institutions, and together we are implementing an ambitious transformation strategy to achieve this,” said Balama.

He said the Financial Stability Report records the CBUAE’s approach to identifying and mitigating potential systemic risks and safeguarding the stability and resilience of the UAE financial sector. The report outlines the risks for the banking system, which stem from the potential deterioration of assets quality and insufficient change in banks’ business models in light of the global digital transformation, climate change, and the rising governance requirements.

The regulator said it had conducted risk-based supervision and solvency and liquidity stress tests to assess potential vulnerabilities. The CBUAE also conducted analyses on global and domestic financial stability risks and implemented measures to mitigate those risks.

“Overall, these tests indicated that the UAE banking system had adequate capital and liquidity buffers to withstand severe shocks.”

The regulator said with the acceleration of digitalisation of financial services, it further improved its systems, enhanced digital transformation, and ensured cyber resilience.