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Wednesday, 03 June 2020

UAE central bank announces $27 billion plan to boost virus-hit economy

Reuters , Saturday 14 Mar 2020
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The central bank of the United Arab Emirates (UAE) announced a 100 billion dirham ($27 billion) economic plan on Saturday aimed at containing the impact of the coronavirus outbreak, which has so far infected 85 people in the Gulf Arab state.

The move is aimed at supporting banks and businesses in the country, where the outbreak is impacting vital economic sectors such as tourism and transportation.

The central bank said it will provide 50 billion dirhams through collateralized loans at zero cost to all banks operating in the UAE while an additional 50 billion dirhams will be freed up from lenders’ capital buffers.

“The CBUAE is allowing banks to free-up their regulatory capital buffers to boost lending capacity and support the UAE economy,” it said in a statement.

The move comes after Dubai on Thursday announced a 1.5 billion dirhams stimulus package aimed at supporting the retail, trade, tourism and energy sectors.

Concerts, sporting events and industry conferences have been canceled or postponed in the past few weeks in the UAE to contain the spreading of the new coronavirus.

In Dubai - the Middle East’s trade, finance, tourism and transportation hub - some businesses have started to feel the pain from the global travel slowdown caused by the outbreak.

The central bank said the scheme aimed to offer banks relief for up to six months from the payments of principal and interest on outstanding loans for affected private sector companies and retail customers.

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Other measures introduced by the regulator include reducing by 15-25% the amount of capital banks have to hold for their loans to small and medium enterprises, and better terms for first-time home buyers, who will be required to put up less of their own capital for real estate purchases.

Importantly for the local real estate sector - which has been struggling in Dubai for the past decade - banks will be allowed to increase their exposure to real estate loans.

“When the exposure reaches 20% of the banks’ loan portfolio (measured by risk-weighted assets), banks will be allowed to increase it to 30%, but will be required to hold more capital,” it said.

The central bank also introduced regulations that reduce banking fees for small companies.

The Dubai and Abu Dhabi indices dropped last week amid coronavirus concerns and because of an oil price war between Saudi Arabia and Russia, which sent oil prices tumbling.

To contain volatility in the markets, the central bank said it plans to issue guidelines on margin calls, asking banks to always request additional collateral before liquidating pledged stocks in case of a market downfall.

It also reiterated its commitment to maintain the peg of the dirham to the U.S. dollar, and said foreign currency reserves amounting to 405 billion dirhams as of March 10 were “adequate” to safeguard the stability of the currency.

The dirham last week dropped in the forwards market.

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