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Abu Dhabi:
The Central Bank said in its annual report 2022 that, in its capacity as the one charged with promoting financial stability in the country, due to the importance of a stable and reliable financial system for sustainable economic growth, and with the fading of the impact of the Covid-19 pandemic, there was an urgent need for vigilance during the year 2022, in light of global tensions and financial developments. volatile college.
The Central Bank conducted risk assessments and stress tests based on various scenarios, and closely monitored the potential impact of external developments on the UAE financial system and economy in general. Despite these adverse global trends, the UAE’s financial system has maintained its integrity, and economic growth has remained strong.
Oversight of the financial system
The Central Bank conducted a forward-looking review of the resilience of the financial system and its inherent vulnerabilities. These procedures included global, regional and local assessments of current financial risks and emerging financial trends affecting UAE banks and non-banking financial institutions.
The UAE financial sector maintained its resilience throughout 2022, and key performance indicators showed a broad recovery in the aftermath of the pandemic, supported by the proactive measures taken by the Central Bank.
The banking sector has been able to maintain a large lending capacity to support the economy and has conducted regular assessments of asset quality.
The Central Bank applied the criteria for banks’ exposure to the real estate sector, in order to contribute to supervising and controlling the level of exposure to the sector. The Central Bank has also strengthened its efforts to monitor and analyze ESG risks in financial institutions and financial markets.
Stress tests 2022
In 2022, the Central Bank conducted the annual stress test from the bottom up to reveal potential weaknesses in the banking sector, and conducted a forward-looking capital and liquidity precautionary assessment of banks. The hypothetical opposite scenario around stagflation risks developed as a result of rising inflation and tightening interest rates in the US and Europe. Stagflation risks will be transmitted to the country’s GDP growth rate, oil prices, capital and housing markets.
The results showed that the UAE banking sector can withstand the studied scenarios, while maintaining adequate levels of capital and liquidity.
The Central Bank continued comprehensive repeated tests to assess the impact of high inflation and the marked tightening of monetary policy on the UAE banking sector.
Another objective of these tests is to measure the potential risks of sustaining the debts of UAE companies and households resulting from high interest rates, and the impact of this on the capital of UAE banks, and liquidity margins.
The results showed that the UAE banking sector possesses sufficient reserves of capital and liquidity to withstand any potential increase in interest rates at a higher than expected level.
annual report
The Central Bank of the Emirates published its annual report for the year 2022, in which it reviews the most important achievements and initiatives that enhance monetary and financial stability in the country, in addition to the projects and initiatives that were launched during the year 2022.
The report indicates that the gross domestic product of the UAE is expected to have achieved growth of approximately 7.6% in 2022, supported by remarkable activity in all sectors, which is one of the highest growth rates at the global level, which has witnessed a slowdown due to high global interest rates. and geopolitical tensions. Despite the sharp rise in global inflation in light of the pressures on supply chains and the rise in commodity prices, inflation in the UAE remained well below the global average, recording 4.8%, with an expected decline in 2023.
In light of the expectations of the global economic recession and recession, the Central Bank, headed by His Highness Sheikh Mansour bin Zayed Al Nahyan, Vice President, Deputy Prime Minister, Minister of the Presidential Court, Chairman of the Board of Directors of the Emirates Central Bank, continued to implement its macro and monetary precautionary policies, taking into account the map of The strategic path pursued by the UAE government to maintain the country’s competitiveness, ensure high economic growth, while creating and securing job opportunities for citizens.
temporary support measures
The report indicated that the Central Bank achieved an important step by ending most of the temporary support measures aimed at supporting borrowers to face the repercussions of the “Covid-19” pandemic. This step reflects the return of the banking system to pre-pandemic levels of profitability and financial strength. According to the report, the banking sector continued to support the economy through lending to the private sector, and the assets of the banking sector and total written premiums in the insurance and bank credit sectors increased, while the Central Bank conducted regular assessments of asset quality.
The Central Bank also conducted basic reviews, follow-up and objective assessments of potential risks facing licensed financial institutions with the aim of measuring their financial performance, and verifying enhanced regulatory requirements, including capital, liquidity, profits, credit quality, service control measures and operational flexibility. It strengthened its supervisory cooperation, transparency and coordinated oversight procedures on the external operations of locally established banks, as it conducted six external tests based on its risk-based supervisory and control plan.
New licenses for banks
The report states that under the newly published regulatory framework, the Central Bank has granted new licenses to specialized banks, stored value facilities, and retail payment service providers.
In the area of countering money laundering and combating the financing of terrorism, the Central Bank continued to take stringent measures, with a continued focus on deficiencies in the AML compliance frameworks,
