Liquidity of UAE banking system back to pre-Covid-19 levels, Central Bank says

Reliance on the regulator's Tess programme has halved to Dh22bn, from Dh44bn in second quarter of 2020

The UAE Central Bank in Abu Dhabi. The regulator is set to introduce a new intraday liquidity facility from April 21. Ryan Carter / The National

Liquidity in the UAE’s banking system has returned to pre-Covid-19 levels as the economy continues to recover from the pandemic.

Banks have now substantially reduced their use of the Targeted Economic Support Scheme, the Dh50bn zero-cost funding programme set up a year ago to help lenders maintain funding flows through the economy, the UAE Central Bank said on Monday.

The programme “has yielded positive impact for the UAE’s banking sector and the wider economy”, said the regulator’s governor Abdulhamid Alahmadi.

“The introduction of the stimulus package came at a critical juncture and ensured that banks were able to mitigate funding and liquidity pressures and maintain their lending capacity.”

Mr Alahmadi made the comments after meeting the chief executives of the country’s biggest banks.

The amount lenders are drawing down from Tess has declined to Dh22 billion, half of the maximum drawdown of about Dh44bn reached in the second quarter of last year.

The funding programme, which was extended to June 30 this year, is part of local and federal support packages worth Dh388bn, Minister of Economy Abdulla bin Touq said in December.

The Central Bank said more than 320,000 customers – including individual clients, small to medium enterprises and other private corporations – benefitted from Tess.

Currently, there are about 175,000 customers taking advantage of the programme, allowing them to defer loans.

“In tandem with the banking sector, we paved the way for the UAE’s robust economic recovery from the pandemic,” said Mr Alahmadi.

“Our base projection envisages the recovery of the UAE economy in 2021, with real gross domestic product set to increase by 2.5 per cent.”

He said the regulator would continue to closely monitor market and economic developments in the UAE and globally.

Consultancy Alvarez & Marsal said in a report last week that the economic recovery is expected to provide a more supportive operating environment for banks in the UAE this year.

“We expect 2021 to be less volatile for the UAE banking sector, compared with 2020. Events such as Expo Dubai and a gradual economic improvement are expected to be the key catalysts for the sector in the near term,” said Asad Ahmed, Alvarez & Marsal’s managing director and head of financial services in the Middle East.

The country’s four largest banks reported a combined net profit of $6.7bn for 2020, down 35 per cent from the previous year, because of higher loan-loss provisions and lower interest rates, according to Moody’s Investors Service.

However, the capital buffers of the nation’s lenders remain strong, it said.