The governor of the UAE central bank met with the various lenders in the country last week and urged them to utilise the allocated funds from the Targeted Economic Support Scheme (TESS) facility in line with the stipulated guidelines.

“Banks have already utilised over 30 percent of allocated funds from the TESS facility and are actively passing on these funds to their customers affected by the COVID-19 pandemic,” said, Abdulhamid Saeed, Governor of the Central Bank of the UAE.

“We will continue to work closely with banks and financial institutions to accelerate their full utilisation of the TESS. This requires banks to closely collaborate with us and intensify their efforts to implement the economic stimulus package for the benefit of the banking sector and the UAE economy,” he added.

The aggregate value of all capital and liquidity measures adopted by the central bank to support the economy during the coronavirus crisis under the TESS amounts to 256 billion dirhams ($70 billion).

Below are the central bank guidelines on utilization of TESS:

Banks are urged to process more applications from individuals, corporates and SMEs whose business operations are affected by the implications of COVID-19 pandemic.

Banks are expected to retain sound lending standards and are required to treat all their customers fairly.

During the validity of the TESS, which runs up to year end 2020, banks are expected to postpone the payments of interest and/or principal of loans for customers; individuals, SMEs and other private sector companies affected by the repercussions of the COVID-19 pandemic.

The CBUAE has mandated banks to accelerate the account opening time to a maximum of two days for SMEs, unless banks identify the customer as high risk from an anti-money laundering perspective.

Additionally, banks shall not be allowed to require their SME customers to have a minimum account balance amounting to over 10,000 dirhams. This measure is aimed at providing banks’ customers with economic relief and to facilitate the continuation of business operations in the UAE.

Additional measures include the decrease of the minimum required down payment, to increase the affordability of real estate.

The TESS, launched on March 14, includes a liquidity relief tool of 50 billion dirhams offered by the CBUAE through banks to eligible customers who wish to apply for a deferment.

Those eligible customers impacted by the effects of the pandemic will not be required to pay their respective bank any installments, consisting of principal and/or interest/profit, for the agreed deferment period, the CBUAE said in a statement.

However, any interest/profit accrued during the deferment period on the principal amount, will be paid by the customer at a later date, to be agreed upon with their respective bank. Banks should not charge any interest/profit on the deferred interest/profit amounts, the statement added.

“Relaxing liquidity buffers will, over the next few months, support banks' liquidity and ease potential funding challenges, and if it results in increased lending to liquidity-constrained borrowers, will limit banks' asset quality deterioration,” Mik Kabeya, AVP Analyst at Moody’s had said in a research note.

"However, relaxing the liquidity buffer requirement and cash reserve requirement is likely to be unfavorable towards banks' unsecured creditors because it risks weakening the banks' resilience and reducing the likelihood of early regulatory intervention," he added.

The CBUAE will begin to publish the TESS facility usage by individual banks starting May 2020.

(Writing by Gerard Aoun, editing by Seban Scaria)

( gerard.aoun@refinitiv.com )

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