UAE’s Relief for Banks will Soften COVID-19 Impact on Economy

by Zaara 01, Oct 2020

UAE’s Relief for Banks will Soften COVID-19 Impact on Economy

The World Health Organisation has declared that the coronavirus COVID-19 as a global pandemic, the Central Bank of the UAE, CBUAE, has endorsed several measures to support the economy and protect consumers of UAE.

The Central Bank chairman of the UAE, Hareb Masood Al Darmaki, initiated the meeting discussing the implementation of the Targeted Economic Support Scheme, which contains the impact of coronavirus COVID-19 pandemic, which is approved by the board of directors during its remotely assemble meeting held on Friday, 13th March 2020. After the conference discussions, the board of directors instructed continuous follow-up on the implementation of the scheme and taking necessary measures.

Economic Support Scheme

The Central Bank of the UAE, on 14th March 2020, announced a 100 billion dirhams equivalent to $27.23 billion. The main focus is on Economic Support Scheme for retail and corporate customers affected by COVID-19. The scheme consists of 50 billion dirhams freed up from banks capital buffers and another 50 billion dirhams from central bank funds through approved loans at zero cost to all banks.

The Central Bank of the UAE announced further measures to support the economy during the coronavirus COVID-19 pandemic that increase the size of its Targeted Economic Support Scheme from Dh100 billion to Dh256 billion, which is equivalent to $70 billion and it is also same as 17 percent of the country's GDP. The new measures include a Dh95 billion liquidity buffer relief and Dh61 billion reduction-of-cash-reserves requirements for the banking sector.

Mik Kabeya, an analyst at Moody's rating agency, said that "Over the next few months support banks liquidity ease potential funding challenges, and it results in increased lending to liquidity constrained borrowers, it will limit their likely material asset quality deterioration because of the coronavirus outbreak." 

Relaxation of Liquidity Buffers

In the $70 billion scheme, 16 percent of the fund will provide to UAE banks domestic credit and 8 percent to their total assets. A high liquidity buffer scheme will support banks' liquidity status and help in maintaining potential funding. As a result, this measure will increase the limit of their material asset quality deterioration, which has caused the coronavirus COVID-19 pandemic. Considering the importance of liquidity and capital in banks, they are focusing on increasing the cash in the banking sector that will provide stability and allow banks to give lending facilities and support in these uncertain times

Impact on Other Sectors

Apart from the banking sector, other sectors also got affected, that includes tourism, transportation, trade, and small and medium enterprises (SMEs), which also affected the economy. According to the data of the end of 2019, credit facilities provided to the wholesale and retail trade sector accounted for 9%, credit to the transport, storage and communication sectors accounted for 5%, credit to the construction and real estate sectors (including hospitality) accounted for 19%. Asset quality deterioration due to the coronavirus COVID-19 pandemic is hampering the global trade, fall in oil prices and geographical tensions. Experts also said that restructuring of corporate debt might reduce the problem loans, but will increase the potential problem of loan formation. 

Focusing on the Economy

Although the UAE banks will face profitability problems shortly, they are trying to gear up the banking system by taking necessary measures, which will reduce the pressure and make them able to meet the threats and challenges. Still, the most important and prime problem is to make sure the economy is stable and support from the customers amid the pandemic. If the economy is improved, then profits will increase funds to provide small and medium enterprises (SMEs). Banks are focusing on making funding available in possible low rates. Apart from funding, businesses are also facing many other challenges, so the Government is taking action and providing several relief measures.


Abdulhamid Saeed, the Governor of the CBUAE, said that "the central bank continues to take relevant and necessary actions to back the UAE economy in light of the coronavirus COVID-19 pandemic. The added measures announced will effectively ease the pressure on financial institutions, allowing them to maintain and carry out their essential role as the backbone of the economy."

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