Dubai: The Central Bank of UAE’s decision to extend the duration of the Zero Cost Facility (ZCF) (funds given to banks without interest) of Dh50 billion is expected to boost the recovery of the UAE economy, according to businesses, bankers and financial consultants.
The extension of the support scheme is expected to benefit retail, small and medium enterprises (SMEs) and corporate banking customers in need of funding. It will also facilitate liquidity management for banks through collateralised funding at zero cost, for an additional period of six months.
Under the extended scheme, zero cost funding facility is available to banks until June 30, 2021, allowing banks to offer loan deferment to individuals and businesses that are affected by COVID-19.
We believe that this initiative [the extension of Targeted Economic Support Scheme (TESS)] will shield the economy from the impact of the pandemic and place us in an ideal position to recover, once the pandemic is over.
Catalyst for recovery
The Central Bank of UAE, the International Monetary Fund and the Institute of International Finance expects the UAE economy to contract in excess of 5 per cent this year and return to growth trajectory in 2021.
TESS facilities are available as a temporary relief from the payments of principal and/or interest/profit on outstanding loans for all affected private sector corporates, SMEs and individuals. SMEs and private corporates in the UAE Free Zones are included in the TESS, however, entities registered in the UAE Free Zones providing financial activities and financial banking activities are not included. The TESS does not apply to outstanding loans to government, government-related entities (GREs) and non-residents.
Individuals and businesses who are impacted by COVID related liquidity crunch need to approach their banks directly or through their relationship managers to avail deferment of their existing loans. Bankers said priority will be given to those who are availing the facility for the first time, but those applying for a second time too will be considered on merit.
Bankers and businessmen expect, the sustained central bank stimulus will be a catalyst in the fast recovery of the economy.
“We believe that this initiative [the extension of TESS] will shield the economy from the impact of the pandemic and place us in an ideal position to recover, once the pandemic is over,” said Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE.
The reopening of the economy has seen some pickup in non-oil economic activity reflected in the improvement in the UAE Purchasing Managers’ Index in the past few months. Bankers said the liquidity support will help in sustaining the growth momentum.
“We believe this initiative will further shield our customers, small and medium sized enterprises, and corporate banking clients, and provide them with a huge confidence boost as they work to rebound from the COVID-19 slowdown earlier this year
“Emirates NBD stands in solidarity with the UAE government and Central Bank in helping to support and safeguard the wellbeing of all individuals and businesses. We applaud the exceptional vision of our nation’s wise leadership in containing the challenging circumstances of the pandemic, and the extension of the applicability period of the TESS is just another example of their proactive efforts to continue accelerating economic recovery,” said Hesham Abdulla Al Qassim - Vice Chairman and Managing Director, Emirates NBD.
“We believe this initiative will further shield our customers, small and medium sized enterprises, and corporate banking clients, and provide them with a huge confidence boost as they work to rebound from the COVID-19 slowdown earlier this year. As a leading bank in the UAE, Emirates NBD was among the first in the industry to step up and introduce support measures to UAE businesses and we remain committed to doing everything we can to protect our customers, stakeholders,” said Al Qassim.
The boost of liquidity into the banking sector has been integral to support customers and businesses during this unprecedented time, by providing loans to all UAE banks and freeing up capital buffers. This has put us in good stead and enabled us to take fast, decisive action to support our clients throughout the pandemic.
First Abu Dhabi Bank (FAB), the UAE's largest bank said since the onset of Covid-19, the UAE government has moved quickly and effectively to alleviate risks and overcome challenges to support the economic prosperity of the country.
"The boost of liquidity into the banking sector has been integral to support customers and businesses during this unprecedented time, by providing loans to all UAE banks and freeing up capital buffers. This has put us in good stead and enabled us to take fast, decisive action to support our clients throughout the pandemic," said André Sayegh, FAB Group Chief Executive Officer.
"The CBUAE’s decisive action since March has allowed us to extend such relief measures to our consumer, SME and corporate customers in the form of payment deferrals under the Targeted Economic Support Scheme (TESS) exceeding Dh7.5 billion as of September-end 2020. In addition to TESS and FAB’s ongoing commitment to support the UAE government, we continued to provide relief to customers and the wider community through our own programmes.”
A prudent move
Mashreq Bank welcomed the development and describe the decision taken by the Central Bank of the UAE to extend the TESS for another six months, is a prudent move that will accelerate recovery and aid the local economy and provide much needed support to individuals and businesses.
“The measures undertaken by the Central Bank will help alleviate financial stress and ensure a smooth flow of credit thereby assisting banks in the UAE better fund their corporate, SME and retail customers. At Mashreq, we continue to develop various initiatives to support our customers across business segments, most notably, helping to restructure or defer their liabilities in line with their cash flow, waiving fees, extending loan repayment periods, reducing cash advance charges and avoiding suspending accounts,” said Ahmed Abdelaal, Group CEO of Mashreq Bank.
To date, the TESS loan deferral programme has benefited more than 310,000 retail customers, nearly 10,000 small and medium sized enterprises, and more than 1,500 private sector corporates.
While we have learned to adapt to the situation, more time is needed for the economy to reach full capacity. By extending the TESS program through June 2021, the CBUAE is sending a strong message of continuous support to the various components of the economy
“It is obvious that the CBUAE is taking a very proactive and positive approach in supporting the economy in order to minimize the damage from the repercussions of the Covid19 pandemic. The second wave that is upon us worldwide has delayed the full extent of the expected recovery. While we have learned to adapt to the situation, more time is needed for the economy to reach full capacity. By extending the TESS program through June 2021, the CBUAE is sending a strong message of continuous support to the various components of the economy. This new window seems best aligned with the the time required for the various vaccine options - which are showing promising results already - to become widely available to the public. The latest positive market response highlights more than eloquently the positive expectation of the global recovery,” Varouj Nerguizian, CEO of Bank of Sharjah.
Abu Dhabi Commercial Bank (ADCB) said the continued commitment to UAE Central Bank’s TESS programme to support the UAE economy is a welcome move.
“ADCB continues to support the decisive measures introduced by the Central Bank of the UAE to support the country’s economy through TESS. The bank has participated fully in TESS, offering a package that includes deferment of loan instalments, reduced fees and charges, interest rate reductions and waivers, and rescheduling of working capital facilities for SMEs and corporates,” ADCB said in a statement.
Financial consultants believe the extension of loan deferment will be a big relief to both businesses and individuals.
“Even though a vaccine might be available in the coming months, it will be sometime before the world attains the pre-pandemic business level. UAE businesses will need access to liquidity to survive during this crucial time,” said Bal Krishen, Chairman, Century Financial.
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Businessmen said liquidity is key to keep the businesses to withstand the challenging environment and the latest Central Bank move is reassuring.
“We fully appreciate the support provided by the Central Bank of UAE to establishments during this pandemic period, through its various initiatives. The rollout of TESS has been instrumental in bringing adequate liquidity to many Banks under the UAE Banking System, which has further trickled down to benefit nearly all major corporate sectors and individuals at large,” said. Adeeb Ahamed, Mananging Director of LuLu Financial Holdings.
“The scheme has involved thousands of SMEs and Retail customers and empowered them to access money or service their obligations amidst the many socio-economic constraints. We welcome the decision by CBUAE to extend the scheme, which we are hopeful will boost the lending confidence of the banking system and mitigate the prevailing challenges in the industrial scenario, particularly in sectors like Hospitality, Real Estate, Food & Beverages, Oil & Gas, Manufacturing & Retail, as well as individual consumer,” said Ahamed.