UAE: Central bank assesses implications of climate risks on financial sector
Source: Middle East Insurance Review | Oct 2025
A study by the Central Bank of the UAE (CBUAE) has assessed the financial implications of climate-related disasters for the financial system, including the broader macroeconomic impact, losses from business disruptions and insurance sector spillovers.
In its “Financial Stability Report 2024”, the CBUAE said that coastal flooding posed higher tail risks due to rising sea levels, while rainfall flooding exhibited relatively lower incremental risks.
The study findings included:
- Storm Surge Risks: Losses in property valuation were estimated to range between 6% and 14%, depending on flood severity. Severe storm scenarios could raise average Loss Given Default (LGD) by up to 300 basis points, reflecting higher collateral damage and reduced recovery values.
- Capital Impact: LGD deterioration translates into higher provisioning needs, which in turn erodes capital buffers. This effect was estimated to reduce banks’ CET1 (Common Equity Tier 1) by approximately one-third of a percentage point, assuming no change in Probability of Default (PD). Additional losses could arise if PDs increase in more vulnerable segments, such as commercial real estate. M