TESS plays key role in mitigating COVID-19 impacts on UAE economy

Abdulhamid M. Saeed Alahmadi, Governor of the Central Bank of the UAE (CBUAE), on Monday conducted the first quarterly meeting this year with the CEOs of the largest banks operating in the UAE.

The meeting’s agenda focused on the effectiveness of the Targeted Economic Support Scheme (TESS) in mitigating the implications of the COVID-19 pandemic on the UAE’s economy.

The Governor also discussed other issues impacting the country’s banking sector, such as the transition from the existing interbank offered rate IBOR to alternative reference rates and the role of the banking system in supporting the post-COVID recovery of the UAE economy.

Alahmadi said, “It is satisfying to see that the TESS programme has yielded positive impact for the UAE’s banking sector and the wider economy. The introduction of the stimulus package came at a critical juncture and ensured that banks were able to mitigate funding and liquidity pressures and maintain their lending capacity.”

The Governor of the CBUAE and banks’ CEOs noted that the overall liquidity of the UAE banking system returned to the pre-COVID level.

The banks’ drawdown of the dedicated TESS zero-cost liquidity facility was Dhs22 billion in March 2021, down from the maximum drawdown of about Dhs44 billion reached in Q2 2020, consistent with the temporary nature of the payment deferral scheme. From the inception of the TESS programme, more than 320,000 customers, including individuals, small to medium-size enterprises and other private corporations have benefitted from it. There are about 175,000 customers under the current TESS deferral arrangements.

He added, “In tandem with the banking sector, we pave the way for the UAE’s robust economic recovery from the pandemic. Our base projection envisages recovery of the UAE economy in 2021 with the real GDP to increase by 2.5 per cent. CBUAE will continue to closely monitor market and economic developments both in the UAE and globally.” TESS is a comprehensive programme covering all CBUAE measures in response to the COVID-19 pandemic. In November 2020, the CBUAE extended the applicability period of the TESS zero-cost liquidity facility and the TESS loan deferral and recovery programme until 30 June 2021, along with other regulatory relief measures, which will remain in place through 2021.

The UAE banks provided Dhs6.4 billion in retail loans for residents during Q4 of 2020, according to statistics issued by the Central Bank of the UAE.

Supporting micro, small, and medium-sized enterprises is a priority of the federal government, as part of its policy to diversify the national economy and generate employment opportunities, with the cumulative balance of retail loans amounting to Dhs104.7 billion by the end of December, 2020, a growth of 6.5 per cent from September same year, Retail loans accounted for 6.6 per cent of the cumulative balance of the credit facilities provided by the UAE banks to all business activities undertaken by the UAE residents by the end of December.

Separately, the Central Bank of the United Arab Emirates revealed that the UAE banks provided Dhs3.9 billion in industrial sector credit facilities for non-residents in 2020.

This brings to around Dhs20.8 billion the cumulative balance of this type of loans by the end of December 2020, a growth of 23 per cent as compared to the same month 2019.

UAE’s loan growth and liquidity picking up pace is reflective of the country’s robust financial profile despite the global economic slowdown triggered by the COVID-19 pandemic.

Industrial credit facilities for non-reisdnts account for 10.4 percent of the total loans provided for non-residents on other business activities, according to the apex bank’s figures.

The total assets of the Central Bank of the United Arab Emirates grew 6.6 per cent to Dhs470.5 billion by the end of December 2020, CBUAE latest statistics have showed recently. The significant growth is driven by a rally in cash and bank balances to Dhs332.25 billion by the end of December from Dhs290.5 billion in November same year. The deposits and current balances increased to around Dhs192 billion in December 2020 against Dhs150.93 billion in November. According to the CBUAE’s figures, the value of other assets picked up from Dhs9.42 billion to Dhs11.78 billion during the reference period.

The Central Bank of the UAE has predicted a strong return to growth in Gross Domestic Product (GDP) for the UAE in 2021, noting the government continues to diversify the economy, provide strong infrastructure spending and encourage private investment both as a measure of growth and private employment.

“The UAE as a country is blessed with strong natural resources, as well as a government both willing and able to stimulate economic activity and a population comprised of both citizens and expatriates with strong determination and will to face challenges,” Abdulhamid M. Saeed Alahmadi, CBUAE Governor, said in a recent message where he recapped 2020 and spoke about the way ahead.