Much to do and learn as UAE banks take long road back to normalcy

Forced to respond to some exacting realities, banks learned valuable lessons in the early months of the pandemic. There was no germane playbook, so banks had to find innovative ways to do things. THE UAE banking industry’s collective response thus far has been notable. It was no easy feat to execute an untested operating model in a short span. Banks however succeeded in effectively deploying technology and demonstrated unprecedented resilience.

More importantly, banks played a crucial part in stabilizing the economy and transmitting UAE Government’s stimulus and relief programs. Banks’ healthy capital levels before the pandemic also helped mitigate the impact from the crisis.

The Central Bank of UAE (CBUAE) relaxed certain prudential regulatory norms, such as, banks are not to classify exposures as nonperforming if they suffered from cash flow pressures related to the pandemic; asking banks to defer repayments on their loans to struggling companies and retail clients, and providing liquidity. The CBUAE has also raised the limit on banks' exposure to the real estate sector and increased the loan-to-value limits for first-time homebuyers.

Ease the pressure

It halved banks' required deposit reserve requirements and reduced regulatory capital conservation buffers. This time for the banking industry, the consequences of the pandemic are not on the same scale as those during the Global Financial Crisis of 2008–10, but they are still notable.

COVID-19 is reshaping the global banking industry in varied dimensions, ushering in a new competitive landscape, stifling growth in some traditional product areas, prompting a new wave of innovation, recasting the role of branches, and accelerating digitization in almost every sphere.

Keep the pace and faith

COVID-19 has acted as a catalyst for digitization. In addition to accelerating adoption, the crisis has also served as a litmus test for banks’ digital infrastructure. But the challenge is far from over yet, banks have to be extremely cautious in their digitization drive, which does not aggravate the already peak economic damage.

Unemployment levels are equivalent to 255 million full time jobs loss - four times more than 2009 global financial crisis and expected to push as many as 90 million people into extreme poverty. As lending growth will remain muted, most banks will focus on managing the impact of the operating environment on their asset-quality as regulators lift their forbearance measures, though progressively.

In the short-term, banks will keep confronting ongoing challenges from the pandemic and boost their resilience—whether it is capital, technology, or talent.

- Abdul Moiz Khan is CEO and Managing Partner of Fursa Consulting.