The Central Bank of the UAE has announced a comprehensive Dh100 billion stimulus package to help retail customers and corporates overcome financial constraints due to coronavirus.
The Targeted Economic Support Scheme consists of Dh50 billion from the Central Bank funds through collateralised loans at zero cost to all banks operating in the UAE and of Dh50 billion funds freed up from banks’ capital buffers.
Given that the World Health Organisation has declared Covid-19 virus as a global pandemic, these measures are aimed at helping retail and corporate customers in tough times and will enter into force with immediate effect.
It said the UAE banking system is adequately capitalised and banks maintain significant voluntary capital buffers in addition to the minimum prudential requirements. The drawdown of those voluntary buffers is not considered for the purposes of calculating the overall size of the targeted economic support scheme.
The Central bank will issue guidelines on margin calls, requesting banks to always request additional collateral within a reasonable time, before liquidating the pledged stocks in a situation of market downfall. This would reduce excessive market volatility and provide investors with increased flexibility to act in their best interest.
Additionally, the CBUAE will mandate all banks to open accounts for SME customers within a maximum time frame of two days, provided acceptable documentation is in place and that the risk is acceptable in view of the anti-money laundering (AML) and CTF obligations.
“Banks are expected to retain sound lending standards and are required to treat all their customers fairly. The purpose of the targeted scheme is to facilitate provision of temporary relief from the payments of principal and interest on outstanding loans for all affected private sector companies and retail customers in the UAE,” it said in a statement on Saturday.
It advised banks to use the funding to grant temporary relief to private sector corporate customers and retail clients for a period of up to 6 months.
“Many retail and corporate customers have become exposed to the risk of temporary shortfall of their cash flows due the outbreak of Covid-19 pandemic, and the scheme is addressing the current situation by providing both a relief to customers and a zero cost funding to banks,” the apex bank said.
Foreign currency reserves amounted to over Dh405 billion as of March 10, 2020. These ample reserves are adequate to safeguard the stability of the national currency and achieve the Central Bank’s objective to ensure monetary and financial stability in the State, it said in a statement on Saturday.
All banks will be allowed to tap into a maximum of 60 per cent of the capital conservation buffer, and, additionally, banks designated as systemically important by the Central Bank will be able to use 100 per cent of their additional capital buffer for systemic importance.
It also reduced the amount of capital banks have to hold for their loans to SMEs by 15 to 25 per cent and will increase the loan-to-value (LTV) ratios applicable to mortgage loans for first-time home buyers by 5 percentage points.
“This will contribute to the affordability of housing without unduly increasing inherent risks. First time buyers will benefit from being required to put up less of their own capital when making the first real estate purchase,” it said.
The apex bank will also revise the existing limit which sets maximum exposure that banks can have to the real estate sector. “When the exposure reaches 20 per cent of the banks’ loan portfolio (measured by risk-weighted assets), banks will be allowed to increase it to 30 per cent, but will be required to hold more capital,” according to Central Bank’s statement.
No more Dh10,000 minimum account balance
Furthermore, the Central bank will adopt new regulations with the objective to reduce fees incurred by merchants when their customers pay by debit or credit cards. It will also issue new regulations which will limit fees banks charge to their SME customers, and stipulate that banks cannot require larger minimum account balance of Dh10,000.
Effective from 15 March 2020 and for a period of 6 months, the CBUAE has waived all fees which it charges for the payment services provided to banks operating in the UAE through its payment and settlement systems.
The CBUAE will continue monitoring the situation very closely, and is prepared to take further steps, if necessary.