UAE Central Bank ramps up TESS scheme to support banking sector

The Board of the Central Bank of the UAE (CBUAE) has decided to add on additional measures within the Targeted Economic Support Scheme (TESS) to shore up the capacity of the banking sector.

These measures include reviewing 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 the structural liquidity position of banks, official news agency WAM reported, citing a press statement issued by the central bank.

The changes affect the Net Stable Funding Ratio that is mandatory for the five largest UAE banks, and the Advances to Stable Resources Ratio, which is applicable to all other banks, including foreign branches.

The purpose of those ratios is to ensure that long-term assets are funded by stable resources of funding. The relaxation of NSFR and ASRR will provide banks with enhanced flexibility in managing their balance sheets.

The mandatory threshold will be temporarily relaxed by 10 percentage points for both ratios. For the NSFR ratio, banks will be allowed to go below the 100 per cent threshold, but not lower than 90 per cent.

For the ASRR ratio, banks will be allowed to go above the 100 per cent threshold, but not higher than 110 per cent. These measures will be effective until December 31, 2021.

The CBUAE added that for the purposes of calculating NSFR and ASRR, the CBUAE Zero Cost Funding Facility under the TESS programme should be treated as stable funding with a 50 per cent weight, irrespective of its maturity.

The weight determines the extent to which funding sources are considered as stable, in order to be eligible to fund long-term assets.

This directive will encourage banks to strengthen the implementation of the TESS scheme and support their customers in overcoming the fallout of the Covid-19 pandemic.

Abdulhamid M. Saeed, governor of the Central Bank of the UAE, said: “The relaxation of the two structural liquidity ratios aims to further facilitate the flow of funds from banks into the economy. This measure will support the implementation of the already adopted TESS measures worth Dhs256bn. The temporary relaxation of NSFR and ASRR will supplement the other measures CBUAE has taken under the TESS to mitigate the impact of the COVID-19 pandemic on private corporates, small and medium-sized enterprises and individuals.”

A total of 26 banks have availed the Targeted Economic Support Scheme(TESS) liquidity facility, with 17 banks drawing down 100 per cent, CBUAE confirmed in June.

Read: UAE Central Bank’s TESS liquidity scheme availed by 26 banks

On March 15, the CBUAE announced the Dhs100bn TESS stimulus package, which included Dhs50bn of zero-interest, collateralised loans for UAE-based banks and also Dhs50bn funds freed up from banks’ capital buffers.

Read: UAE Central Bank announces Dhs100bn package to counter Covid-19

The central bank has projected that economic activity in the country will start to recover in the second half of the year.

Also read: UAE Central Bank projects economic recovery in second half of 2020