The UAE Central Bank sponsored liquidity funding programme has touched the 75% mark. Image Credit: Gulf News Archive

Dubai: To date, 75 per cent of the Dh50 billion liquidity facility - equivalent to Dh37.2 billion of allocated funds - have been drawn down by UAE banks to support individuals, small and medium enterprises and private corporates  impacted by COVID-19.This has been confirmed by Central Bank of the UAE (CBUAE).

“More customers are now availing the benefits from the Targeted Economic Support Scheme (TESS) liquidity facility, which provides financial relief to those affected by the repercussions of COVID-19 pandemic,” the Central Bank said in a statement.

During the past two weeks, more banks have joined the scheme, increasing the total number participating in TESS to 24. “This increase reflects the commitment of the banking sector to further ease the financial burden of affected customer,” the CBUAE said.

Effective next week, CBUAE will start publishing the list of banks that have availed more than 50 per cent of the allocated TESS liquidity facility.

Close monitoring

As part of its ongoing mandate to safeguard consumers, the CBUAE developed detailed regulations in relation to the TESS. During the validity of the TESS, which runs up to year end, banks are expected to postpone the payment of interest and/-or principal of loans for customers - individuals, SMEs and other private sector companies affected by the pandemic.

Those eligible will not be required to pay their respective bank any installments, consisting of principal and/or interest/profit, for the agreed deferment period. However, any interest/profit accrued during the deferment period on the principal, 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 amount.

Massive support

The CBUAE has made available Dh256 billion in support to the economy through the banking sector. While Dh50 billion is through capital buffer relief, Dh50 billion is available at zero-cost funding support (with collateral), Dh95 billion in liquidity buffer relief and Dh61 billion via reduction-of-cash-reserves requirements.

For banks participating in TESS, the CBUAE has granted an extension of capital buffer relief to December 31, 2021. The value of capital buffer relief is Dh50 billion.

For participating banks and finance companies, the CBUAE has granted an extension of zero-cost funding facility against collateral until December 31.

Regulatory relief

To make additional liquidity available to banks, CBUAE had reduced the reserves requirement for demand deposits for all banks, from 14 per cent to 7 This measure is estimated to inject liquidity of about Dh61 billion, which can be used to support banks’ lending to the UAE economy and their liquidity management.

Banks participating in TESS will be able to use a third of their current regulatory liquidity buffers. Banks will have the flexibility to maintain a minimum LCR [liquidity coverage ratio] of 70 per cent and a minimum ELAR [Eligible liquid asset ratio] of 7 per cent.

The overall release of regulatory liquidity buffers is estimated at Dh95 billion. This liquidity can be used to compensate for the effect of posting collateral required by TESS.