Middle East conflict: ‘proactive’ Central Bank supports UAE banks to help businesses

Dubai-based Seya Rahnema and Matthew Escritt of Pinsent Masons, who specialise in banking and finance, were commenting after the Board of the Central Bank of the UAE approved a package of measures which it said is “designed to reinforce the stability and resilience of the UAE banking sector in light of exceptional global and regional circumstances”.

Under this proposed package, UAE banks will be able to access up to 30% of their own cash reserves, which they are otherwise obliged to maintain under the country’s financial framework, as well as obtain short-term loans from the central bank in either UAE dirham (AED) or US dollars (USD). The banks will also benefit from temporary relief in liquidity and stable funding ratios so that they have “greater flexibility to support the UAE economy”, the central bank said. The package further provides for a relaxation of rules around capital buffers and credit risk management.

The Central Bank of the UAE said banks “should continue to provide the required financing services to support their customers and the national economy”.

Rahnema said: “The conflict is having a profound impact on people and businesses in the UAE, the wider region and on global economies. In the UAE specifically, the tourism and hospitality industries have been particularly affected by the conflict, while the evacuation or repatriation of people by foreign governments has put a strain on some workforces. The shutdown of oil and gas production and restrictions on the flow of oil and other goods through the Strait of Hormuz are generating significant knock‑on effects. Projects are facing delays and cost increases, alongside wider disruption to global supply chains. These factors are increasing the financial pressures on UAE businesses.”

“However, as the central bank itself highlighted, the UAE’s financial system has been resilient to the effects of the conflict to-date and is well-placed to remain resilient should the crisis worsen. The central bank’s measures are preventative in nature and give banks more freedom from regulatory restrictions to ensure they continue lending to businesses that may need to access capital at this time,” he said.

Escritt added: “This proactive step by the UAE’s central bank is evidence of robust leadership and has been positively received by market participants. Despite the conflict, the UAE has demonstrated continuing resilience and this timely intervention by the UAE central bank reflects a broader national strategy: to preserve financial stability, sustain economic activity, and project confidence to the world at large during a period of exceptional regional volatility.”