Looks like it’s time to wean ourselves off those government funds. The UAE Central Bank yesterday announced plans to withdraw its $70b Covid-19 stimulus measures. As a direct effect, the cutbacks will first impact financial services companies (like banks) as the stimulus allowed lenders to defer their loan portfolios and utilize the Central Bank’s zero-cost lending facility.
The stimulus also allowed banks to maintain lower capital and liquidity safeguards. These relaxations were already set to expire by the end of the year but they could be extended for a while longer. Indirectly, rolling back these measures might have a knock-on effect on the clients that banks were lending to as certain stimulus measures are removed (borrowers that were previously avoiding penalties from defaulting might not get the same leniency as before). Certain measures, however, are to be left in place such as lower reserve requirements (how much emergency cash a bank should have) and the extent to which banks can leverage up mortgages for first-time home buyers.
Why it matters
While banks might need an adjustment period as things stabilize, the stimulus-removal marks confidence from the Central Bank that the UAE economy is back in full swing, and the Central Bank is projecting national GDP to grow by 2.1% this year and 4.2% in 2022.