UAE Central Bank comprehensive economic support plan
The Board of Directors of the UAE Central Bank approved additional measures within the comprehensive economic support plan aimed at enhancing the capacity and resilience of the banking sector to support the economy. These measures are represented in reviewing the current ceilings of two precautionary ratios, namely the ratio of stable net sources of financing and the ratio of loans and advances to stable sources of funds through the temporary easing of the structural liquidity position at banks.
UAE Central Bank measures for a comprehensive economic support plan
His Excellency Abdul Hamid Muhammad Saeed, Governor of the UAE Central Bank confirmed that the easing of the structural liquidity ratio aims to facilitate the injection of more liquidity from banks into the economy and that this measure would urge banks to implement the previously approved economic support plan, which amounts to a total value of 256 billion dirhams. This temporary easing of structural liquidity requirements is complementary to other measures taken by the UAE Central Bank as part of the economic support plan to mitigate the impact of the COVID-19 epidemic on private sector companies, small and medium enterprises, and individuals.
UAE Central Bank additional step
The UAE Central Bank confirmed in a statement that this measure comes as an additional step to encourage banks to enhance their implementation of the economic support plan and support affected customers to face the repercussions of the COVID-19 epidemic, pointing to the impact of these changes on the “ratio of net stable sources of financing”, which is mandatory for the five major banks in Emirates, and the “ratio of loans and advances to stable sources of funds” that applies to all other banks, including branches of foreign banks operating in the country.
The objective of these ratios is to ensure that long-term assets are financed by stable sources of financing. Facilitating the “ratio of net stable sources of financing” and “the ratio of loans and advances to stable sources of funds” will enhance the flexibility of banks in managing their balance sheets.
UAE Central Bank Temporary facilitation
The UAE Central Bank confirmed that the mandatory limits for each of the two rates will be eased, on a temporary basis, by 10 percentage points. With regard to the “net stable sources of financing ratio”, banks will be allowed to reduce the ratio to less than 100%, but not less than 90%.
As for the “ratio of loans and advances to stable sources of funds,” banks will be allowed to raise the prescribed ratio to above 100%, but not to exceed 110%. These measures will be effective until December 31, 2021.
UAE Central Bank Facilities
The UAE Central Bank clarified that for the purposes of calculating the ratios of “net stable sources of financing” and “loans and advances to stable sources of funds”, the zero-cost facilities granted by the central bank under the economic support plan should be treated as stable financing with a weight of 50%, regardless of the duration Merit. Weight determines the extent to which sources of financing can be considered stable, in order to qualify for financing long-term assets.