The purpose of stress testing is to identify and analyse vulnerabilities in the UAE’s financial system. The objective of this task is to provide a forward-looking capital and liquidity adequacy assessment of individual banks and the UAE’s banking system, to assess their capacity to withstand potential adverse systemic risks.

The Financial Stability Department (FSD) completes both top-down and bottom-up stress tests in the UAE.

Top-down stress tests are conducted in-house, using internal models and tools.  

Bottom-up stress tests are conducted by participating banks under consistent methodologies, scenarios and key assumptions developed by the FSD, in co-operation with the other stakeholders. The aggregate results of stress testing are published in the annual Financial Stability Report.

The CBUAE has adopted a comprehensive Financial Crisis Preparedness and Management framework.  

Its objective is to ensure that serious problems in the financial system, especially in banks, are addressed effectively and immediately. Prompt action minimises the potential risks of contagion, the drying-up of liquidity or possible fiscal burdens on the country.

The framework helps to maintain trust in the UAE’s financial system, and its proper functioning during stressful times. As crises often appear suddenly and present unique challenges, the framework’s flexibility allows for an effective, tailored response. 

The CBUAE responded to the COVID-19 pandemic’s uncertainties by activating its Financial Crisis Preparedness and Management framework, and introducing a comprehensive Targetted Economic Support Scheme.