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CBUAE: Setting exemplary regulatory track record

Issac John
Filed on August 31, 2020 | Last updated on August 31, 2020 at 11.25 am
Central Bank of the UAE

The apex bank has been proactive by helping the financial system to tide over of the liquidity crunch with the launch of the Targeted Economic Support Scheme (TESS) in March 2020.

The Central Bank of the UAE has been setting an exemplary track record with its timely and critical interventions as the nation's currency regulator and "lender of last resort" to ensure economic and monetary stability since its inception 40 years ago.

In its traditional role as the institution responsible for providing the nation's economy with funds when commercial banks cannot cover a supply shortage, the CBUAE has come to the fore to prop up the economy and the financial system during several critical periods - the most recent being its crucial intervention to help the UAE banks and businesses navigate the worst financial crisis in the nation's history consequent to the Covid-19 pandemic outbreak and the crippling lockdown.

The CBUAE has been proactive by helping the financial system to tide over of the liquidity crunch with the launch of the Targeted Economic Support Scheme (TESS) in March 2020 even as governments and institutions across the globe started rolling out $10 trillion in stimulus packages to contain the severity of the debilitating economic impact of the pandemic. In April 2020, the central bank doubled its Tess programme from Dh126 billion 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.

The new funds consisted 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

The initiative has been effective in enhancing the banking sector's capacity to support their customers impacted by coronavirus pandemic, as well as to give a fillip to the economy. By ensuring loan repayment relief through deferrals the CBUAE has been instrumental in facilitating many a distressed households and businesses to withstand the unprecedented challenges and pivot them to swift resilience.

The latest action of CBUAE was to relax two prudential ratios, the Net Stable Funding Ratio and the Advances to Stable Resources Ratio, in order to enable the local and foreign banks with enhanced flexibility and capacity to support the economy and better manage their balance sheets at a time when loan defaults are on the rise. With such measures, the central bank is ensuring enough liquidity in the system so that people and businesses in need get credit support and become resilient to the changing economic climate.

Abdulhamid Saeed, Governor of the Central Bank of the UAE, said the relaxation of NSFR and ASRR will further facilitate the flow of funds from banks into the economy.

"This measure will support the implementation of the already adopted Tess measures worth Dh256 billion. The temporary relaxation of NSFR and ASRR will supplement the other measures the central bank has taken under to mitigate the impact of Covid-19 pandemic on private corporates, small and medium-sized enterprises and individuals," he said.

Another action initiated by the Central Bank in recent times is the introduction of a new overnight deposit facility to enable conventional banks operating in the UAE to deposit their surplus liquidity at the apex bank on an overnight basis.

The introduction of the Overnight Deposit Facility (ODF) is the first step towards implementation of the new "Dirham Monetary Framework" announced earlier this year. The ODF shall be the prime facility for managing surplus liquidity in the UAE banking sector prior to the launch of the Monetary Bills Programme and shall replace issuance of one-week Certificate of Deposits.

According to the CBUAE governor, the introduction of the new facility is a reflection of the CBUAE's continuous efforts to achieve the objectives of its monetary policy and to foster money market developments in the UAE.

"This new facility will support banks operating in the UAE in proactively managing their day-to-day liquidity and help in aligning overnight money market rates with the Base Rate in normal market conditions."

Established under the Federal Law No.10 of 1980 as a public institution, the Central Bank of the UAE promotes financial and monetary stability, efficiency and resilience in the financial system, and the protection of consumers through effective supervision that supports economic growth for the benefit of the UAE and its people.

In July, 2020, President His Highness Sheikh Khalifa bin Zayed Al Nahyan issued a Federal Decree restructuring the Board of Directors of the Central Bank of the UAE, CBUAE, under the chairmanship of   Sheikh Mansour bin Zayed Al Nahyan, Deputy Prime Minister and Minister of Presidential Affairs.

Pursuant to the Decree, the Board of Directors of the CBUAE was reconstituted. The current members of the board include Abdulrahman Saleh Al Saleh as vice-chairman; Abdulhamid Mohammed Saeed as governor; and Younis Haji Al Khoori, Khalid Mohammed Salem Balama, Khalid Ahmad Humaid Al Tayer and Dr Ali Mohammed Bakheet Al Rumaithi as members.

The apex bank's official mandate includes the following: Preparing and implementing monetary policy in line with the national agenda; exercising the privilege of currency issuance; organising licensed financial activities, establishing the foundations for carrying them out and determining the standards required for developing and promoting prudential practices; setting up appropriate regulations and standards for protection of customers of licensed financial institutions; monitoring the credit condition in the state in order to contribute to the achievement of balanced growth in the national economy; managing foreign reserves to maintain, at all times, sufficient foreign currency assets to cover the monetary base; and regulating, developing, overseeing and maintaining soundness of the financial infrastructure systems in the state, including electronic payment systems, digital currency, and stored value facilities.


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