UAE banking sector: Central bank governor suggests worst is over but recommends caution

Abdulhamid Saeed Alahmadi said things are 'now better than before'; industry 'has pulled through'

  
General view of the Central Bank of UAE on January 3, 2017

General view of the Central Bank of UAE on January 3, 2017

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UAE central bank governor Abdulhamid Saeed Alahmadi said that things are looking better now for the country’s banks, suggesting that lenders have overcome the worst of the coronavirus pandemic. But he warned that banks should continue to operate with caution.

Lenders in the country have been on the frontline since the outbreak started, supporting companies and residents affected by the financial fallout of COVID-19. During the second quarter of the year, banks’ profits continued to deteriorate amid low interest rates and credit uptake.

The central bank governor met with the chief executive officers (CEOs) of all banks operating in the UAE on Wednesday to ascertain the state of the country’s banking industry, including the financial stability of lenders.

“Most indicators in the banking industry, including liquidity, capital adequacy, are stable and there has been a pickup in various growth indicators as at the third quarter of the year,” the banking regulator said in statement issued after the meeting.

The regulator said Alahmadi believes that “things” are “now better than before and that the banking industry has pulled through what would be characterised as extraordinary times”. However, he advised banks to “continue with caution” and that they should ensure their balance sheets remain robust, and their capital, liquidity and provisioning levels are sufficient.

He stressed that the “safety and soundness” of the banking system in the UAE is and will continue to be a top priority for the banking regulator.

Decline

During the second quarter of 2020, the ten largest banks in the country saw their total interest income fall for the third consecutive time by 7.7 percent quarter over quarter. Their net income also dipped by 3 percent amid lower interest and other operating income, according to Alvarez & Marsal, a global professional services firm.

It also noted that loans and advances remained flat in the third quarter, and that banks could face further increases in bad loans, particularly after the payment deferral relief for borrowers is lifted.

The UAE government has rolled out a series of initiatives to stem the economic impact of the coronavirus pandemic. At the end of the third quarter of the year, the largest banks in the country provided borrowers access to 5.1 billion dirhams through the central bank’s Targeted Economic Support Scheme (TESS).

The central bank said that to date, the TESS loan deferral programme has benefited more than 310,000 retail customers, nearly 10,000 small and medium-sized enterprises (SMEs) and more than 1,500 private sector firms.

(Writing by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

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