UAE banks can withstand shocks of any size, says regulator

The front of the Dubai International Financial Center. (Shutterstock)
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Updated 08 July 2020

UAE banks can withstand shocks of any size, says regulator

  • Important sectors of the UAE economy have reached a near standstill over the past few months

DUBAI: The United Arab Emirates Central Bank said on Tuesday the country’s banking sector can withstand any scale of shock as banks are well capitalised, 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”.

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.

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.

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.


Turkey on brink of recession as economy collapses

Updated 13 August 2020

Turkey on brink of recession as economy collapses

  • Consumer debt has increased by 25 percent to more than $100 billion in the past three months

JEDDAH: President Recep Tayyip Erdogan’s popularity is plunging in lockstep with Turkey’s collapsing economy and the country is on the verge of a potentially devastating recession, financial experts have told Arab News.
The value of the Turkish lira has fallen to 7.30 against the US dollar and the central bank has spent $65 billion to prop up the currency, according to the US investment bank Goldman Sachs.
Consumer debt has increased by 25 percent to more than $100 billion in the past three months as the government moved to help families during the coronavirus pandemic, but the result has been a surge in inflation to 12 percent.
With the falling lira and increased price of imported goods, the living standards of many Turks who earn in lira but have dollar debts have fallen sharply.
The economy is expected to shrink by about 4 percent this year. The official unemployment rate remains at 12.8 percent because layoffs are banned, although many experts say the real figures are far higher.
To complete the perfect storm, tourism revenues and exports have been decimated by the pandemic, and foreign capital has fled amid fears over economic trends and the independence of the central bank.
Wolfango Piccoli, of Teneo Intelligence in London, said logic dictated an increase in interest rates but “this is unlikely to happen.”
Piccoli said central bank officials would strive to avoid an outright rate hike at their monetary policy meeting on Aug. 20. “A mix of controlled devaluation and backdoor policies, such as limiting Turkish lira’s liquidity, remains their preferred approach,” he said.
There is speculation of snap elections, and Erdogan’s view is that higher interest rates cause inflation, despite considerable economic evidence to the contrary.