UAE Central Bank doubles stimulus package, extends debt relief to customers till 2020-end

UAE central bank, coronavirus, Covid-19, debt relief

Dubai - The Central Bank had earlier announced a Dh100 billion stimulus package.

By Waheed Abbas

Published: Sun 5 Apr 2020, 9:53 AM

Last updated: Tue 7 Apr 2020, 3:04 PM

The Central Bank of the UAE on Sunday doubled the size of its stimulus package to Dh256 billion and allowed banks and finance companies in the country to extend deferrals of principal and interest payments to their customers until December 31, 2020.

On March 15, the Central Bank had announced a Dh100 billion stimulus package, which allowed banks to grant temporary relief on retail and business clients' for loans payment of up to six months.

The regulator also took another major step on Sunday, halving the reserve requirement for demand deposit of all banks from 14 per cent to seven per cent in order to increase liquidity in banking sector and mitigate the impact of coronavirus. This step will release Dh61 billion additional liquidity for the banking sector.

The regulator also doubled its stimulus package from Dh126 billion to Dh256 billion since March 15. The new funds now consist of Dh50 billion capital buffer relief banks, Dh50 billion funds available at zero cost to extend finance, Dh95 billion to ensure there is enough liquidity in the market and Dh61 billion reduction of cash reserve requirements.

It also extended zero cost funding facility of Dh50 billion available to banks from mid-September to December 31, 2020.

Abdulhamid Saeed, Governor of the Central Bank of the UAE, said the additional measures announced will effectively relieve the pressure on financial institutions, allowing them to continue to carry out their crucial role as the backbone of the economy while offering the required relief and continued access to funding for businesses and households.

"The steps the Central Bank of the UAE is taking are forward-looking, targeted and diverse, demonstrating that we are leveraging the full potential of the tools we have at our disposal. The Central Bank expects banks and finance companies to make active use of the Tess facility, for the benefit of their customers and the UAE economy," he added.

AbdulAziz Al Ghurair, chairman of UAE Banks Federation (UBF), stated that by increasing liquidity in the banking sector, it will provide further stability in these uncertain times, and allow banks to offer additional lending and support to critical sectors of the economy.

"To help the country navigate through the temporary difficulties we are facing, UBF, in coordination with the Central Bank of the UAE and its member banks, remains committed to supporting businesses, and advancing economic development and sustainability," Al Ghurair said.
Dr Khalid Maniar, founder and managing partner, Crowe Mak, said these economic stimulus schemes by the central bank are a positive move for long-term sustainability and economic growth of the economy.
"The UAE leadership continues to take numerous safety and support measures that would provide financial liquidity for business sustainability and growth opportunities. What had until recently been low risk accounts as per IFRS 9 that were collectable or being properly serviced might now be doubtful because of collapses in income, doubts about going concern, or deferral of the balance because of government action to protect business," Maniar said.
However, he noted that the firms and businesses need to account how the economic stimulus and support packages issued by respective countries would implement within the application of IFRS 9.
"The postponement of implementation of certain Basel III capital standards to March 2021 for all banks would minimise operational burden and banks will welcome this move with appreciation. The application of prudential filter to IFRS 9 expected loss provisions and same will be gradually phased-in during a five-year period ended December 31, 2024," said Maniar.
Dr  Yaqoub  Mousa,  chairman,  Bu  Abdullah Group  of Companies, stated that  the  move  will further  mitigate  the  impact  of  the  Covid19 pandemic on  the  UAE  economy.  
"The  move  will  boost  the  morale  of  the business  community  in  the  UAE,"  he  said. "The UAE's leadership latest decision to step  up  precautionary measures to  contain  the  impact of  the Covid-19 pandemic is  aimed  to  protecting  people's health  and safety  and ensuring  business continuity  at  all  sectors. "The country's  visionary  leadership  is positively responding  to  the  challenges with  grace  and resilience,"  he  added.

Basel III conditions postponed

The Central Bank said it is working with other regulators to issue guidance on financial reporting standard IFRS 9 for banks and finance companies. It postponed implementation of certain Basel III capital standards to March 31, 2021 for all banks, to minimise the operational burden on the lenders.

Importantly, guidelines have also been issued for banks and finance companies on the implementation of the financial reporting standard, IFRS 9. The guidance has been issued for public consultation and it is expected to be finalised by April 8, 2020.

It also has issued a new requirement for all banks to apply a new filter to IFRS 9 expected loss provisions. The filter aims to minimise the effect of IFRS 9 provisions on regulatory capital, in view of expected volatility due to the Covid-19 crisis.

Any increase in the provisioning compared to December 31, 2019 will be partially added back to regulatory capital. It said IFRS 9 provisions will be gradually phased-in during a five-year period, ending December 31, 2024.

Dubai Financial Services Authority also believes that local financial institutions should cash in on flexibility embedded in IFRS 0 framework to cope with the current crisis.

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