Dubai: The UAE’s financial system showcased remarkable resilience throughout 2022, as affirmed by the Central Bank of the UAE (CBUAE) in its recently released Financial Stability Report. Despite facing global headwinds, the UAE’s banking sector remained well capitalized and equipped with ample liquidity buffers, contributing to the system’s unwavering stability.
The report highlights the significant role played by favorable domestic conditions in insulating the UAE’s financial system from adverse global economic trends. Consequently, the risks impacting the system remained well-contained, staying within acceptable boundaries and exhibiting minimal changes compared to the previous year.
“The UAE Financial Stability Report 2022 demonstrates the best practices followed by the CBUAE in maintaining a stable, sustainable and resilient financial sector that is able to manage potential risks,” said Khaled Mohamed Balama, Governor of the CBUAE. “These efforts are in line with our vision of becoming among the world’s leading central banks in promoting monetary and financial stability and is in support of enhancing the competitiveness of the financial sector as part of the UAE’s strategic objectives.”
A notable achievement revealed in the report is the accelerated growth of the UAE’s real GDP in 2022. This growth was fueled by a robust recovery in non-oil GDP and a substantial expansion in oil GDP. These positive developments are particularly noteworthy considering the global economic slowdown, persistent external risks, heightened inflation, tightening financial conditions, and ongoing geopolitical tensions.
The UAE’s banking system greatly benefited from the local macroeconomic recovery in 2022. Credit growth, especially in private sector loans, experienced a strong rebound throughout the year. Additionally, the profitability of the banking sector exceeded pre-pandemic levels, primarily driven by higher interest margins and reduced impairment charges.
Demonstrating the resilience of UAE banks, the CBUAE’s stress test exercise showcased their ability to withstand risks associated with stagflation and market uncertainties. The exercise provided reassurance that the banking sector possesses sufficient capital and liquidity to weather severe adverse hypothetical scenarios while continuing to support the economy by ensuring a steady flow of credit to UAE borrowers.
Within the non-bank financial institutions sector, the report highlights the soundness of the UAE insurance sector, which witnessed sustained business growth with gross written premiums surpassing pre-pandemic levels. Despite facing further contraction in business volumes, the finance companies sector demonstrated resilience, while the exchange houses sector remained profitable, benefiting from an upturn in non-oil business activities.
The CBUAE’s payment systems demonstrated robustness throughout 2022, adeptly processing an increasing volume and value of transactions. This achievement was driven by the country’s economic growth trajectory and ongoing efforts to digitize financial services.
With regards to sustainability, the report underlines the importance of UAE financial institutions effectively managing climate-related financial risks. It also emphasizes the opportunities that arise from the global economy’s growing demand for sustainable finance.
