Coronavirus: Impact on the banking sector in the United Arab Emirates

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published on 7 May 2020 | reading approx. time 2 minutes

  

​After the World Health Organization (WHO) declared covid-19 as a global pandemic in March, the central bank of the United Arab Emirates (CBUAE) has introduced an AED 100 billion economic support scheme to provide financial support to private and business customers affected by the covid-19 pandemic. This regulation aimed at relieving the banks' customers financially and ensuring the continuation of business activities within the United Arab Emirates (UAE).

  

   
 
The so-called Targeted Economic Support Scheme (TESS) consists to 50 % of CBUAE funds in form of secured loans at no charge to all banks operating in the UAE and to 50 % of capital buffers from banks that became available. The regulatory relief announced by the CBUAE aims on decreasing the impact of the Coronavirus (covid-19) on the economy and the banking sector.

 
Meanwhile, the CBUAE announced additional measures to support the economy during the pandemic, by increasing the scope of TESS from AED 100 billion to AED 256 billion (approx. USD 70 billion or about 17 % of the UAE’s GDP). The minimum reserve was initially cut by half from 14 to 7 % for all local banks. This step will inject about AED 61 billion into the banking system and subsequently support lenders and their liquidity management. The aim of the above-mentioned program is to provide all affected private sector companies and private customers in the UAE with a temporary exemption from capital and interest payments on outstanding loans. The participating banks shall use the released funds to provide temporary relief to private and business customers for up to six months.

 
The CBUAE has also instructed local banks to reduce fees and other charges. In addition, they were requested to relax the existing, in some cases extensive, criteria for opening an account and to significantly reduce the existing minimum cover amount as well as the deferral of interest payments, repayments and other fees. Recently, the regulatory authority also announced that the TESS will be further extended. As a result, banks and financial institutions will be able to defer the main amount of loans and interest until the end of 2020.

 

Furthermore, the local banks in the UAE have already used over 30 % of the funds allocated under the aid program (as of April 2020) and have actively passed these funds to their affected customers. This step was made in form of a comprehensive relief package, which also aims on supporting customers and significantly reduce any financial distress for private individuals caused by the Coronavirus. Currently, Emirates NBD, Dubai Islamic Bank, Emirates Islamic, Mashreq and the Commercial Bank of Dubai offer such a relief package. These measures extend the six-month economic stimulus package of the UAE government and the UAE central bank, which aims on supporting the UAE economy.

 

The new regulations include the following services:

  • A 50 % reduction of cash advance fees for cash withdrawals by credit card;
  • Credit card holders can take advantage of the zero per cent easy payment plans for school fee transactions without any additional fees;
  • Various reductions to so-called easy payment plans, cash on call and balance transfers;
  • Possibility of reimbursement of foreign currency fees in connection with travel and hotel cancellations;
  • Customers who are financially impacted (due to unpaid leave or other valid reason) can request a payment deferral of up to 3 monthly installments without fees and profit charges for existing and new financing plans;
  • Request for a debt consolidation solution;
  • First-time home buyers can receive 5 % more financing (up to 85 % for Emiratis and up to 80 % for expatriates).

 

In the upcoming weeks, it is expected that more banks will join the TESS, thus dampening the economic impact of the Corona pandemic within the Emirates and further relieving the burden on private and business customers.

 
If you have any question in this regard or require any legal or tax assistance, please do not hesitate to contact us anytime.

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