Central Bank of UAE extends Dh50b support to COVID-19 affected individuals and businesses

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Abu Dhabi: The Central Bank of the UAE (CBUAE) has announced the extension of the applicability period of the key components of its economic stimulus package, the Targeted Economic Support Scheme (TESS) until June 30, 2021.

The TESS was launched by the CBUAE in March 2020 to support the UAE’s economy during the COVID-19 pandemic, through a range of integrated relief measures to the banking sector related to funding, liquidity, lending and capital.

Under this extension, the CBUAE will extend the duration of the Zero Cost Facility (ZCF) of Dh50 billion, which benefits retail and corporate banking customers and facilitates liquidity management for banks through collateralised funding at zero cost, for an additional period of six months.

The Central Bank remains committed to supporting the financial system of the UAE by taking the required measures to accelerate economic recovery from COVID-19 repercussions. The extension of applicability period of the TESS will provide relief for retail, small and medium sized enterprises, and corporate banking customers.

Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE
What is TESS?
The Central Bank of UAE had announced a total of Dh256 billion economic stimulus following the COVID-19 outbreak. This included a liquidity relief tool of Dh50 billion offered through banks to eligible customers who wish to apply for a loan deferment.
Those eligible customers impacted by the effects of the pandemic will not be required to pay their respective bank any installments, consisting of principal and/or interest/profit, for the agreed deferment period. However, any interest/profit accrued during the deferment period on the principal amount, will be paid by the customer at a later date, to be agreed upon with their respective bank. Banks should not charge any interest/profit on the deferred interest/profit amounts, as per the conditions set by the CBUAE.
TESS scheme was implemented by banks under the close monitoring of the central bank and by mid-May 2020, most leading bank had fully utilised the facility.

Liqudity support for new loans

Starting from 1 January 2021, banks and finance companies participating in the TESS will be able to provide new loans and facilities to customers negatively affected by the pandemic within the applicable terms and conditions set by the TESS standards.

“The Central Bank remains committed to supporting the financial system of the UAE by taking the required measures to accelerate economic recovery from COVID-19 repercussions. The extension of applicability period of the TESS will provide relief for retail, small and medium sized enterprises, and corporate banking customers,” said Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE.

Large number of beneficiaries

The CBUAE’s TESS succeeded in enhancing the financial system’s capacity to support individuals and businesses affected by the COVID-19 repercussions. To date, the TESS loan deferral programme benefited more than 310,000 retail customers, nearly 10,000 small and medium sized enterprises, and more than 1,500 private sector corporates.

“We believe that this initiative [the extension of TESS] will shield the economy from the impact of the pandemic and place us in an ideal position to recover, once the pandemic is over,” said Alahmadi.

The Central Bank of the UAE has also announced a gradual implementation schedule of the remaining parts of the Basel III compliance project in three stages, starting from Q2 2021 until Q2 2022, as part of its commitment to the application of the international regulatory standards in the UAE.

Components of UAE Central Bank stimulus
The CBUAE has been proactive in making liquidity available to the banking system through a range of measures such as zero cost funding, low cost funding and relaxed regulatory capital limits and liquidity rules. A total of Dh256 billion stimulus announced by the CBUAE includes a liquidity relief tool of Dh50 billion offered through banks to eligible customers who wish to apply for a loan deferment, Dh50 billion capital buffer relief, Dh95 billion liquidity buffer relief, and reduction by half the reserve requirements on demand deposits for all banks from 14 per cent to 7 per cent, adding Dh61 billion in liquidity support. In addition, in early August, the Central Bank also announced liquidity support to banks by relaxing the existing thresholds of two prudential ratios: the Net Stable Funding Ratio (NSFR) and the Advances to Stable Resources Ratio (ASRR) by temporarily relaxing the requirements for improving the structural liquidity position of banks. These measures were aimed at enhancing the capacity of the banking sector to support the economy.