Coronavirus: UAE banking sector can withstand shocks of any size, says central bank

The United Arab Emirates Central Bank said on Tuesday the country’s banking sector can withstand any scale of shock as banks are well capitalized, despite forecasting a deterioration of credit metrics in the country.

Ratings agency Moody’s said on Monday the twin challenges of the coronavirus crisis and the drop in oil prices will hit bank profits hard in the oil-producing Gulf region.

In a statement, the UAE central bank said that while the coronavirus pandemic poses challenges to banks, “our stress tests demonstrate that the UAE banking sector is able to withstand macro-financial shocks of any size.”

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The capital adequacy rate among UAE banks stood at 16.9 percent as of the end of March and the eligible liquid asset rate was 16.6 percent as of the end of May -- “well in excess of the minimum regulatory requirements,” it said.

Moody’s said on Monday it expects Gulf banks provisioning charges for possible loan losses to rise sharply and the economic downturn to hit banks’ income deriving from interest on loans and fees and commissions.

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Important sectors of the UAE economy have reached a near standstill over the past few months because of virus containment measures while others, such as real estate, have been sluggish for years.

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In a separate report on Tuesday, the UAE central bank said the UAE property sector would continue to present risks for UAE banks amid the coronavirus crisis, but also “persistent supply and demand imbalances as well as deteriorating financial performance of property developers.”

It also cautioned that companies may become distressed because of the coronavirus outbreak and their debt servicing capacity is expected to deteriorate this year.