The Central Bank of the UAE (CBUAE) has released its Financial Stability Report for 2022, providing a comprehensive evaluation of the stability of the UAE’s financial system. Despite global challenges, the report confirms that the banking sector in the UAE is well-capitalised and equipped with sufficient liquidity buffers.
The report examines both global and local macroeconomic conditions, domestic asset markets, and offers a thorough assessment of the UAE banking system. It also outlines the various tools employed by the CBUAE as part of its macroprudential responsibilities, assesses non-bank financial institutions and analyzes the broader financial infrastructure. Furthermore, the report analyzes significant developments within the UAE financial sector, such as digitalization and sustainability, which contribute to enhancing the competitiveness and resilience of the country’s economy.
Highlighting favourable domestic conditions, the report emphasizes that the UAE’s financial system remained insulated from adverse global economic trends in 2022. As a result, the risks to the financial system remained within acceptable limits and were mostly unchanged from the previous year, according to WAM.
Accelerated GDP Growth and Recovery
Additionally, the report reveals that the UAE experienced accelerated real GDP growth in 2022, driven by a strong recovery in non-oil GDP and substantial expansion in oil GDP. This occurred amidst a global economic slowdown characterized by increased inflation, tightening financial conditions, and ongoing geopolitical tensions.
The UAE’s banking system also benefited from the local macroeconomic recovery, with credit growth, particularly in private sector loans, rebounding throughout the year. The banking sector’s profitability exceeded pre-pandemic levels due to higher interest margins and reduced impairment charges.
Regarding stress tests conducted by the CBUAE, the report affirms the resilience of UAE banks against the risks of stagflation and market uncertainties. It indicates that the banking sector possesses adequate capital and liquidity to withstand severe adverse scenarios while continuing to support the economy by providing credit to borrowers in the UAE.
UAE Insurance Sector and Non-Bank Financial Institutions
In terms of non-bank financial institutions in 2022, the report highlights the soundness of the UAE insurance sector, which experienced sustained business growth with gross written premiums surpassing pre-pandemic levels. The finance companies sector demonstrated resilience despite a contraction in business volumes, while the exchange houses sector remained profitable with increased non-oil business activities.
The CBUAE’s payment systems remained robust throughout 2022, processing a growing number and value of transactions driven by economic expansion and ongoing digitalization efforts.
Addressing sustainability, the report emphasizes the importance of UAE financial institutions managing climate-related financial risks and capitalizing on opportunities arising from the global economy’s growing demand for sustainable finance.
Khaled Mohamed Balama, Governor of the CBUAE, said, “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. 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.”
