UAE central bank eases liquidity rules to support banks amid regional tensions

The Central Bank of the UAE has introduced emergency measures to support the banking sector, temporarily relaxing liquidity requirements and expanding access to funding as regional tensions raise the risk of tighter financial conditions.

The measures aim to ensure banks maintain access to both dirham and US dollar liquidity while safeguarding financial stability during the ongoing conflict involving Iran, according to state news agency WAM.

The central bank outlined a five-part plan that allows banks to use up to 30% of their required reserves and provides expanded access to longer-term funding in both local and foreign currencies.

Additional measures include temporary relief on liquidity and stable funding ratios, along with the provisional release of capital buffers to support lending to the economy.

Banks will also be permitted to delay the classification of certain individual and corporate loans affected by what the regulator described as “extraordinary circumstances” linked to the regional situation.

The central bank said lenders should continue providing financing to businesses and households to sustain economic activity.

The UAE banking system, with assets of around AED5.4 trillion ($1.5 trillion), remains well-capitalised, according to the central bank, which said there has been no material impact on the sector’s health or payment systems.

Banks currently hold about AED920 billion with the central bank, including more than AED400 billion in reserves, while foreign-exchange reserves exceed AED1 trillion, providing a 119% cover of the monetary base.

These buffers give the central bank capacity to support liquidity conditions if needed. The measures come as analysts assess potential risks from a prolonged regional conflict.

S&P Global Ratings said Gulf banks could draw on around $630 billion in liquid assets if needed, but warned that customers could withdraw up to $307 billion in deposits if the conflict intensifies over several weeks.

The agency added that regulators in the region are likely to respond with further support measures, similar to those introduced during previous shocks such as the COVID-19 pandemic.

The UAE central bank said it will continue to monitor developments and adjust its policies to maintain financial stability.