Experts: The market is recovering ... and banks are receiving new funding requests

Banks cut back on financing for small and medium enterprises in the second quarter

The latest data issued by the Central Bank revealed that banks reduced financing of small and medium enterprises during the second quarter of this year (end of June 2020) to 92.5 billion dirhams, compared to 93.4 billion dirhams at the end of the first quarter of 2020, a decline of 900 million dirhams.

The data also showed that banks withdrew from the liquidity support facilities provided by the Central Bank with a "zero" interest, to support the economy from the repercussions of the emerging corona virus (Covid-19), a value of 44.4 billion dirhams, equivalent to 88.8% of the total support provided at 50 billion dirhams.

According to the data, government entities received the largest share of bank financing during the second quarter of this year, as their loans reached 23.3 billion dirhams between March and June 2020.

The market recovered

The banking expert, Ahmed Youssef, said that the facilities of the Central Bank came to support the cohesion of the economy in the face of the repercussions of the (Covid-19) pandemic, and were directed as specified by the bank.

He added that the confusion caused by the pandemic to companies and individuals halted all expansion plans, or the start of a new activity, so it was natural for small and medium-sized companies' funds to decline, stressing that the market has begun to recover strongly, and there is an increasing demand for funds, whether from individuals or companies.

Youssef stressed that banks also take into account the creditworthiness of the dealer, whether a company or an individual, in addition to ensuring cash flows, ability to repay, and other matters related to risk management, indicating that all these factors were affected during the second quarter of the year that witnessed the peak Virus spread.

Youssef emphasized the strength of the economy in the UAE and the solvency of the banking sector, as evidenced by the speed with which activities returned to their usual work.

Protect the economy

For his part, banking expert Mustafa Al-Rikabi said that the demand for new financing declined significantly during the pandemic period in all countries of the world, due to the lack of clarity of the future at the time.

He added that the support facilities provided by the Central Bank were directed, according to what was stated in its circular, as banks participating in this plan had to use the financing to grant temporary exemptions to private sector companies and their individual clients, for a period of six months, with the aim of facilitating the provision of temporary exemption. As well as from principal payments and interest on outstanding loans to private sector companies and affected individual customers.

Al-Rikabi stressed that the facilities protected the economy and helped prevent companies from leaving the market or going bankrupt, and this was the most important goal at the time.

He continued: “Since the reopening of economic activities, banks have begun to receive new, gradual financing requests, which may show their value later,” stressing that “the liquidity of the banking sector in the country is high, and it must be employed and pumped into the arteries of the economy.”

44.4

One billion dirhams of liquidity that banks have withdrawn from the support facilities provided by the Central Bank.

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