As part of efforts to mitigate the repercussions of the spread of the Corona Virus (Covid-19) epidemic on the national economy, the Board of Directors of the Central Bank decided to reduce the mandatory reserve ratio of demand deposits by half for all banks as it was reduced from 14% to 7%, which will contribute to enhancing liquidity and pumping what An estimated 61 billion dirhams of liquidity in the banking sector can be used to support bank lending to sectors of the national economy, and to manage their liquidity.
The Central Bank has extended the schedule of the comprehensive economic support plan directed to support affected clients and companies, and approved additional improvements to the plan.
Banks and finance companies participating in the targeted comprehensive economic support plan can extend the debt deferral period and interest on payments due until December 31, 2020.
Banks can also participate in the targeted comprehensive economic support plan, extend the reductions in protective capital until December 31, 2021. The value of the reductions in the released protective capital amounts to 50 billion dirhams.
The Central Bank also approved an extension of the zero-cost financing facilities covered by a guarantee for the banks and financing companies participating in the plan until December 31, 2020. The value of the available zero facilities is 50 billion dirhams.
Banks participating in the targeted comprehensive economic support plan will be able to withdraw by using a third of their existing regular liquidity reserves. Consequently, the banks will be given the flexibility to maintain a minimum liquidity coverage ratio of 70%, and the minimum eligible liquid assets ratio will be reduced to 7%. The total value of the statutory liquidity reserve to be released is estimated at 95 billion dirhams, and that liquidity will be used to offset the effect of providing the required guarantees in a plan Targeted comprehensive economic support.
The implementation of a set of capital standards related to the Basel III requirements implementation plans will be postponed until March 31, 2021 for all banks, to reduce the operating burden of the financial sector during this difficult period.
In cooperation with the two regulatory authorities in charge of regulating financial services in both the Financial Services Regulatory Authority in the Abu Dhabi International Market and in the Dubai International Financial Center, the Central Bank has issued a set of guidelines to banks and finance companies on the implementation of the IFRS9. These directives enable banks and finance companies to take advantage of the flexibility afforded by the international standard framework while at the same time committing to maintaining the highest levels of compliance and consistency. These directives were submitted for public consultation today, with these consultations ending on April 8, 2020.
The central bank issued new requirements to all banks to apply a precautionary assessment to the expected credit losses provisions under the IFRS9 international financial reporting standard. The precautionary evaluation aims to reduce the impact of the said international standard allocations on regulatory capital in light of the expected fluctuations resulting from the consequences of the "Covid 19" epidemic. Any rate of increase in provisions or exemptions compared to the period ending December 31, 2019 will be partially returned to the regulatory capital. IFRS9 allocations will be implemented in phases over a 5-year period ending on 31 December 2024.
Banks are required to disclose the impact of their application of the precautionary assessment mentioned in their financial statements and reports on pillar No. (3) of the International Standard. These requirements are fully in line with the Basel Committee directives of 3 April 2020.
Commenting on the new measures, His Excellency Abdul Hamid Saeed, Governor of the Central Bank of the United Arab Emirates, said: “The Central Bank will continue to take all precautionary measures and measures to support the local economy and the banking sector in the face of the effects of the Corona virus (Covid-19). The additional measures announced It is about today to proactively alleviate the burdens of the crisis resulting from financial institutions and support them to continue to play their vital role as the main nerve of the economic wheel, in addition to supporting and supporting companies and families and continuing to provide the necessary funds for them. "
The Governor added: "The comprehensive and diversified steps taken by the Central Bank reflect the proactive and thoughtful approach that we follow and our firm commitment to responding to crises by employing all available capabilities and tools and acting according to the powers that the Central Bank has to support the national economy at this sensitive stage. The Central Bank expects that banks and companies Funding for the effective utilization of comprehensive economic support plan facilities directed at achieving benefit for their clients and the national economy.