The Central Bank of the UAE rolled out a comprehensive financial institution resilience package on Tuesday, approving a five-pillar liquidity and capital relief package, backed by its more than one trillion dirhams in assets, designed to insulate the country's 5.4 trillion dirham banking sector from the deepening Iran crisis. The package was approved at a CBUAE board meeting chaired by Sheikh Mansour bin Zayed Al Nahyan, as the conflict entered its third week.

FIVE PILLARS OF DEFENCE

The package is built around five pillars. Under Pillar I, banks gain enhanced access to up to 30 percent of their cash reserve requirements and may draw on term liquidity facilities denominated in both dirhams and US dollars. Pillar II provides temporary relief on liquidity and stable funding ratios.

Pillar III temporarily releases the Countercyclical Capital Buffer and the Capital Conservation Buffer. Pillar IV addresses credit risk directly, allowing banks to delay the classification of loans to individuals and companies affected by the extraordinary circumstances. Pillar V affirms that banks should continue providing financing to support customers and the national economy.

CONFLICT TESTS GULF RESILIENCE

The conflict between the United States, Israel and Iran has disrupted global energy markets and shipping lanes, triggered multiple attacks in Dubai and other Gulf cities, and sent oil prices above $110 a barrel.

An S&P Global Ratings report published Monday warned that Gulf banks could face domestic deposit outflows totalling $307 billion if the regional conflict escalates further. The rating agency noted that while there were no signs of significant foreign or local funding flight so far, the risk appeared manageable. The CBUAE said its foreign exchange reserves exceeded one trillion dirhams, equivalent to $270 billion, with a monetary base cover ratio of 119 percent.

BANKING SECTOR STILL STANDING

The central bank said the UAE's financial system "has demonstrated resilience during the current extraordinary circumstances affecting the global and regional markets without any material impact on the banking sector's health and payment systems." Total liquidity held by UAE banks at the CBUAE, combined with their net eligible assets for conventional central bank operations, approached 920 billion dirhams, roughly $250 billion, of which reserve balances alone exceeded 400 billion dirhams.

UAE bank stocks had suffered double-digit losses since the war began in February, before rebounding on 18 March after the package was announced.

ECHOES OF THE PANDEMIC PLAYBOOK

The package is the CBUAE's most significant policy move since the Covid-19 pandemic. During Covid-19, the central bank released roughly 256 billion dirhams in stimulus, combining zero-cost lending facilities with regulatory forbearance. This time the central bank has not put a figure on the package.

The CBUAE board reiterated its readiness to deploy additional policy tools to safeguard financial stability and ensure continued support for the national economy.