UAE Central Bank Takes Measures to Support Local Lenders Amid Ongoing Regional Tensions

UAE Central Bank Unveils Resilience Package to Support Banking Sector

The UAE Central Bank has introduced a comprehensive resilience package to bolster the banking sector and enhance liquidity and lending capacity, amidst the regional market turmoil caused by the Iran war. The measures enable lenders to access up to 30% of their cash reserve requirement balances and tap into term liquidity facilities in AED and USD.

Key features of the package include temporary relief on liquidity and stable funding ratios, as well as the release of key capital buffers to support the economy. Additionally, banks will be allowed to delay classifying loans as non-performing for borrowers affected by the "extraordinary circumstances." This move aims to mitigate the impact of the ongoing conflict on the economy.

The measures come as the US-Israeli war on Iran enters its 19th day, with the UAE bearing the brunt of retaliation from Tehran. Despite the damage to energy infrastructure, airports, and buildings, much of the country has remained open, with shops and restaurants operating and many offices shifting to work-from-home arrangements.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

According to Bloomberg Intelligence, banks in the UAE and Qatar are likely to miss consensus earnings forecasts by 5% to 15% in 2026 due to the regional conflict's impact on economic activity, even under a relatively benign scenario. Lenders in the UAE are expected to face a greater drag than regional counterparts, reflecting the economy's reliance on tourism and expatriate flows, as well as possible adjustments in the real estate market.

The UAE Central Bank has underscored the financial system's strength, citing foreign exchange reserves of over AED 1 trillion ($270 billion). Liquidity available, including reserves held at the central bank and eligible assets for its operations, stands at approximately AED 920 billion, with reserve balances alone exceeding AED 400 billion.

The Dubai benchmark stock index has fallen 13% since the war began, while Abu Dhabi's index is down 7%. Both have recovered some ground over the past two days, led by property and banking shares.