UAE Central Bank announces Dhs100bn package to counter Covid-19

The Central Bank of the UAE (CBUAE) announced a Dhs100bn stimulus package as a counter-measure to tackle the Covid-19 coronavirus in the country, it announced on Saturday.

The Targeted Economic Support Scheme includes Dhs50bn of zero-interest, collateralised loans for UAE-based banks. It also entails Dhs50bn funds freed up from banks’ capital buffers, news agency WAM reported.

“Given that the World Health Organisation has declared Covid-19 virus as a global pandemic, the Central Bank of the UAE has adopted a number of measures in an effort to support the economy and protect consumers,” a statement read.

Participating banks should use the funding to offer temporary relief to private sector and retail customers for a period of up to 6 months. The scheme also aims to ease principal and interest payments on outstanding loans.

Banks across the country are also expected to exercise stable lending practices and treat customers fairly.

All banks will be allowed to tap into a maximum of 60 per cent of the capital conservation buffer. In addition, those banks designated as systemically important by the central authority can use 100 per cent of their additional capital buffer for systemic importance.

The CBUAE has also downsized by 15 to 25 per cent, the capital mandated for banks to hold for their loans to SMEs.

The CBUAE will also increase by 5 percentage points, the loan-to-value (LTV) ratios applicable on mortgages for first-time home buyers, ensuring that houses are affordable without associated inherent risks.

The CBUAE will also revise the existing limit which sets the maximum exposure banks can hold towards the real estate sector. Banks will be allowed to scale the exposure to 30 per cent on reaching 20 per cent of their loan portfolio (measured by risk-weighted assets). However, in that case, banks will be required to hold more capital.

The CBUAE will also adopt new regulations to reduce fees incurred by merchants when customers pay via debit or credit cards.

New regulations which will curb the fees banks charge SME customers will also be introduced. Financial institutions are instructed not to require more than Dhs10,000 as minimum account balance, as well as to open bank accounts for SME customers within two days, provided certain conditions are met.

The CBUAE will issue guidelines on margin calls, requesting banks to always request additional collateral within a reasonable time period, before liquidating the pledged stocks in a situation of market downfall.

Effective March 15, and for a period of six months, the CBUAE has also waived all fees for payment services provided to UAE-based banks through its payment and settlement systems.

The central bank’s initiative has been well-received as the spread of the Covid-19 virus continues to plunge economies worldwide into pressing times.

Lewis Allsopp, CEO of Allsopp & Allsopp said: “The Central Bank of the UAE’s initiative to alleviate the strain on industry finances in the light of Covid-19 could not have come at a better time as levels of uncertainty are entering the markets.

“The Loan-To-Value (LTV) increase of 5 per cent for first-time buyers brought by the initiative is welcomed. This is something that has been long mooted, even before the Covid-19 outbreak, and it now gives buyers who are saving for a deposit a helping hand to make their first UAE property purchase.”

“What we have seen so far since the outbreak of Covid-19 is that buyer and tenant registration levels, along with transaction levels, have not dropped. We expect that the LTV increase will provide a further boost to this sentiment,” Allsopp added.

Last week, Dubai unveiled a stimulus package worth Dhs1.5bn to support businesses in the emirate to help counter the impact of the coronavirus outbreak.

Also read: Coronavirus: Dubai reveals Dhs1.5bn stimulus package to support businesses