Yesterday, the Central Bank raised the measures to support the national economy, to reach 256 billion dirhams, consisting of 50 billion dirhams in the form of reductions in preventive capital, 50 billion dirhams in a funding support body at zero cost, and 95 billion dirhams in the form of cuts in reserve liquidity, And 61 billion dirhams is a reduction in the requirements of mandatory cash reserves.
He announced for the first time that the requirements of the mandatory reserve for demand deposits had been reduced by 50%, while at the same time he had revealed more measures in the face of the consequences of the Corona virus epidemic.
Reducing the consequences of "corona"
In detail, the Central Bank said, in a statement, that “in the context of efforts to mitigate the consequences of the spread of the Corona virus epidemic on the national economy, the bank’s board of directors decided to reduce the compulsory 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 an estimated 61 billion dirhams of liquidity into the banking sector, which can be used to support banks' lending to the sectors of the national economy, and manage their liquidity. ”
According to the statement, the Central Bank extended the timetable for the comprehensive economic support plan directed to support affected clients and companies, and approved additional improvements to the plan.
Debt delay
The Central Bank indicated that banks and financing companies can participate in the targeted comprehensive economic support plan, extend the period of debt delay and interest on payments due until December 31, 2020.
He added that banks can also participate in the targeted comprehensive economic support plan, and extend cuts in protective capital until December 31, 2021, where the value of cuts in liberated protective capital amounts to 50 billion dirhams.
The Central Bank approved an extension of the zero-cost financing facilities covered by a guarantee to the banks and financing companies participating in the plan, until December 31, 2020, where the value of the available zero facilities is 50 billion dirhams.
He explained that the banks participating in the targeted comprehensive economic support plan will be able to withdraw and use a third of their current regular liquidity reserves, and therefore, 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%. Noting that the total value of the statutory liquidity reserve, which will be released, amounts to about 95 billion dirhams, and that liquidity will be used to offset the impact of providing the required guarantees in the targeted comprehensive economic support plan.
Capital standards
The «Central» added that the implementation of a set of capital standards related to plans to implement the requirements of “Basel 3” will be delayed until March 31, 2021, for all banks, in order to reduce the operating burdens of the financial sector during this difficult stage.
In cooperation with the two regulatory authorities in charge of regulating financial services, in both the Financial Services Regulatory Authority in the Abu Dhabi Global 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 guidelines were presented for public consultations yesterday, and these consultations will end on the eighth of April 2020.
Proactive approach
“The central bank will continue to take all precautionary measures and measures necessary to support the local economy and the banking sector, in the face of the effects of the (Covid-19) virus epidemic, where the additional measures we announced will contribute to proactively alleviating the burden of the crisis,” the central bank’s governor, Abdul Hamid Saeed, said. The consequences for financial institutions and their support for continuing 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.
Saeed added that «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) has to support the national economy in this sensitive phase», and pointed out that "The Central Bank expects banks and finance companies to make effective use of the facilities of the comprehensive targeted economic support plan, in a way that benefits the customers and the national economy."
Precautionary assessment
The central bank issued new requirements for all banks, to apply a precautionary assessment on the expected credit losses provisions, under IFRS9. The precautionary evaluation aims to reduce the impact of the said international standard allocations in the supervisory capital, in light of the expected fluctuations resulting from the repercussions 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 rolled out over a five-year period ending on December 31, 2024.