The impact of the Coronavirus (COVID-19) outbreak on the global economy could lead to reduced borrowing and lending that will affect banks with a bearing on corporate and personal finance in Dubai and the Middle East, warned leading management consultancy Oliver Wyman.
The Middle East has shown resilience demonstrating the ability to weather previous outbreaks diligently including the Middle East Respiratory Syndrome (MERS) in 2012. However, today the region faces new challenges with the outbreak of COVID-19, it said.
Growing anticipation of a cyclical economic downturn accelerated by the impact of COVID-19 has worsened credit quality and limited funding, placing greater pressure on the liquidity of financial institutions, particularly banks.
The Central Bank of the UAE (CBUAE) earlier this week formally requested banks to implement measures to counteract the effects of COVID-19 including rescheduling loans, offering temporary deferrals on monthly loan payments and reducing fees and commissions.
The banking sector requires capital to lend in order to function and operate a sustainable business. For companies and individuals, credit quality reflects their ability to repay debt. Poorer credit quality increases the reliance on the banking sector to provide loans and fund development, placing greater pressure on liquidity levels.
Impaired liquidity in the banking sector limits funding, which could raise a barrier toward business growth and personal finance relief that could lead to a detrimental cycle in the region.
Oliver Wyman believes the global economic impact of the COVID-19 outbreak depends on its duration, how far it spreads and the extent quarantine disrupts the labour market. - TradeArabia News Service
