Dubai: The UAE banking sector is fully prepared to support the UAE economy form the potential adverse impact of coronavirus (COVID-19), said Abdul Aziz Al Ghurair, Chairman of UAE Banks Federation during a video conference on Sunday.
“The UAE government and the Central Bank of UAE have taken a number of measures to mitigate the impact of the virus outbreak on individuals, businesses and the economy at large. Banks have been adequately supported to help their customers in this difficult time,” said Al Ghurair.
In recent weeks, the CBUAE announced a Dh256 billion stimulus package to support the economy through the banking sector. These include a 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 the banking sector.
The latest central bank programme comes in the form of a 50 per cent reduction in reserves requirements for demand deposits - from 14 per cent to 7 per cent. This measure will inject liquidity of about Dh61 billion, which can be used to support banks’ lending and their liquidity management.
We have been discussing with CBUAE to put to work the stimulus package at the most optimal level in the benefit of all deserving customers. Banks have Dh205 billion worth of new liquidity to support their lending. This level liquidity is good enough to support a loan growth of 3 to 4 per cent per year for the next 4 years.
The CBUAE has further extended the duration of the Targeted Economic Support Scheme (TESS). Banks and finance companies participating in the TESS programme will be able to extend to their customers’ loan deferrals of principal and interest until December 31.
“We have been discussing with CBUAE to put to work the stimulus package at the most optimal level in the benefit of all deserving customers. Banks have Dh205 billion worth of new liquidity to support their lending. This level liquidity is good enough to support a loan growth of 3 to 4 per cent per year for the next 4 years,” said Al Ghurair.
In addition to the new liquidity, the central bank has made available Dh50 billion in funding that is exclusively dedicated to support commercial companies and individuals, excluding government related entities (GREs).
“There is enough resources made available to banks to support businesses that are facing difficulties. The banking support will be mostly in the form of loan deferrals during this difficult period,” said Al Ghurair.
Reinventing business models
While financial support will be made available to businesses and individuals to tide over the difficulties, Al Ghurair said utilizing remedial measures, banks and customers should work in a collaborative environment to address the challenges posed by these exceptional circumstances.
“We can’t expect government to bailout every businesses impacted or banks to pick up the bill for every business losses. Everyone has to collaborate to find the right solution. Businesses will have to adapt to the new circumstances and re-orient their targets. Projects will have to be changed to suit the exceptional time,” Al Ghurair said.
While the CBUAE and the government have announced a number of measures to support the economy, Al Ghurair said. Once the virus outbreak is contained all efforts should be focused on rebuilding consumer confidence to support aggregate demand in the economy.
“The biggest challenge facing the economy is consumer confidence. Demand is virtually dead. It will take some time for people resume consumption to reach the previous level,” he said.
Last week, the company was placed under the UK court’s supervision. The court will now appoint administrators to oversee the whole management and operations of the UAE’s largest healthcare operator. This follows an appeal filed by Abu Dhabi Commercial Bank with the UK court for “joint administration” of NMC Health, after it was found that the hospital operator had $6.6 billion in bank debt and was in no position to pay it off.
The existing Board of Directors of NMC “cease to have decision-making powers with immediate effect”. These powers transfer to the Administrators who are responsible for the day-to-day running of NMC.
“It is a good move that the company and all its stakeholders are now protected from any management decision that could work against their interests. When banks loaned money to the company, they were dealing with a London Stock Exchange listed entity, audited by a top auditor. No one knew about the fraud as it turned out now,” Al Ghurair said.
Al Ghurair said the banks are victim of a well-orchestrated fraud and the UBF is prepared to support banks in recovering their money.