The Central Bank of the United Arab Emirates (CBUAE) has released its Financial Stability Report for 2023, offering an in-depth evaluation of the UAE’s financial system and its recent developments. The report, WAM reported, highlights the robustness of the UAE banking sector in 2023, characterized by solid capital reserves, favorable liquidity conditions, improved asset quality ratios, and rising profitability.
This report examines both global and local macroeconomic trends, developments in the money market, and domestic asset markets. It provides a thorough analysis of the UAE banking system, non-bank financial institutions, and the overall financial infrastructure. It emphasizes the enduring strength of the UAE financial system, showcasing the effectiveness of the CBUAE’s policy measures. Furthermore, it details various initiatives undertaken by the CBUAE within its macroprudential framework, addressing key advancements in digitalization and sustainability, which reflect the essential role of the banking sector in enhancing the UAE’s economic resilience and competitiveness.
Macroeconomic conditions and growth
The findings indicate that the UAE benefited from favorable domestic conditions in 2023, which helped shield the financial system from negative global economic trends. The UAE’s real GDP experienced a growth of 3.6 percent, spurred by a significant 6.2 percent increase in the non-oil sector, notably in tourism, real estate, and finance.
Stress testing and risk management
The report also noted a stress test conducted by the CBUAE in 2023, confirming the banking system’s capacity to handle challenges such as inflation and market volatility. Additionally, the CBUAE reiterated its commitment to sustainability by piloting a climate risk scenario analysis, which identified necessary proactive mitigation strategies.
Resilience of the insurance sector
The insurance sector in the UAE showed resilience, maintaining a strong solvency position alongside continued growth in gross written premiums and improved profitability. Finance companies also remained well-capitalized, with enhanced liquidity levels and overall profitability. The UAE’s exchange business demonstrated robust growth, marked by an increase in business activities.
Advancements in payment infrastructure
In 2023, significant strides were made in enhancing financial stability through key initiatives under the National Payment Systems Strategy. The establishment of Al Etihad Payments, a new CBUAE subsidiary, will oversee the daily operations of the UAE’s essential payment systems with appropriate oversight. Additionally, the Instant Payment Platform “Aani” was launched in collaboration with prominent financial institutions to streamline payment processes. Progress was also made in the Central Bank Digital Currency program, with the initial rollout of the Digital Dirham anticipated for 2024.
Successful FATF Action Plan completion
Moreover, the UAE’s successful completion of the Financial Action Task Force (FATF) Action Plan requirements and its exit from the enhanced monitoring process in March 2024 underscore the CBUAE’s commitment to combating money laundering and terrorist financing, thereby reinforcing the integrity of the UAE’s financial system.
Establishment of the Financial Stability Council
To enhance ongoing coordination, the UAE established the Financial Stability Council in 2023, aimed at promoting and safeguarding financial stability to ensure the financial system effectively supports sustainable economic development. The council’s collaborative approach will be vital in addressing future challenges and maintaining the UAE’s financial strength.
Upholding UAE as financial hub
Khaled Mohamed Balama, governor of the CBUAE, expressed that the 2023 Financial Stability Report highlights the resilience and strength of the UAE’s financial system in the face of global challenges. He emphasized that their continuous efforts to improve financial infrastructure and implement strong regulatory measures are crucial in fostering sustainable economic growth and upholding the UAE’s status as a leading financial hub. He also noted their commitment to proactive risk management and innovation to ensure the enduring stability and competitiveness of the financial sector.
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