Combating Covid-19: UAE Central Bank announces debt relief until December 31

The Central Bank had earlier announced a Dh100 billion stimulus package.

The UAE Central Bank on Sunday allowed banks and finance companies to extend deferrals of principal and interest payments to their customers until December 31, 2020.

On March 15, the Central Bank had announced Dh100 billion stimulus package that allowed banks to grant temporary relief on retail and business clients’ loans payments for up to six months.

The regulator also took another major step on Sunday, halving the reserve requirement for demand deposit of all banks from 14 per cent to seven per cent in order to increase liquidity in the banking sector and mitigate the impact of the Covid-19 coronavirus. This step will release Dh61 billion additional liquidity for the banking sector.

For banks participating in the Targeted Economic Support Scheme (Tess)  programme, the regulator has granted an extension of the capital buffer relief of Dh50 billion to December 31, 2021.

The aggregate value of all capital and liquidity measures adopted by the CBUAE since March 14, 2020 has reached Dh256 billion, consisting of Dh50 billion capital buffer relief, Dh50 billion zero cost funding support, Dh95 billion liquidity buffer relief and Dh61 billion reduction of cash reserves requirements.

For banks and finance companies participating in the Tess programme, the apex bank has extended the zero-cost funding facility of Dh50 billion against collateral until December 31, 2020.

This will allow banks participating in the Tess programme to use a third of their current regulatory liquidity buffers. Banks will have the flexibility to maintain a minimum loan-to-capital (LCR) of 70 per cent and a minimum ELAR of seven per cent. The overall release of regulatory liquidity buffers is estimated at Dh95 billion.

Certain Basel III conditions postponed

It also postponed implementation of certain Basel III capital standards to March 31, 2021 for all banks, to minimise the operational burden on the financial industry during this challenging period.

Importantly, guidelines have also been issued for banks and finance companies on the implementation of the financial reporting standard, IFRS 9. It enables banks and finance companies to employ the flexibility embedded in the framework, while effectively ensuring compliance and consistency. The guidance was issued for public consultation today, and it is expected to be finalized by April 8, 2020.

It also has issued a new requirement for all banks to apply a prudential filter to IFRS 9 expected loss provisions. The filter aims to minimise the effect of IFRS 9 provisions on regulatory capital, in view of expected volatility due to the Covid-19 crisis. Any increase in the provisioning compared to 31 December 2019 will be partially added back to regulatory capital. IFRS 9 provisions will be gradually phased-in during a five-year period, ending 31 December 2024. Banks will be required to disclose the effect of the application of the filter in their financial statements and Pillar 3 reports. This requirement is fully consistent with the guidance of the Basel Committee issued on 3 April 2020.