banking law

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September 23, 2020

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A supportive government is what keeping all of us intact and ongoing during this global pandemic. A significant example of this statement is a recent order issued by the Central Bank of UAE by introducing AED 100 billion as a Targeted Economic Support Scheme, hereinafter referred to as the Scheme.

The Central Bank under Scheme has clarified that the half of the raised amount will be utilized for collateralized loans to be issued all banks in UAE at zero cost and other half shall be utilized as a Capital buffer relief. The said order was intentionally issued for assisting residents of UAE as the banks will now relieve the corporate and individual clients who are severely impacted by the situation caused COVID-19.

Key Facilities under the Scheme

  • The Scheme is basically to allow the banks to withdraw funds offered by the Central Bank with no cost and such funds can be exchanged with the payments the bank ought to receive from the clients, thereby allowing the banks to accept delayed payments from their clients.
  • The Scheme allows the banks to seek loan until 31 December 2020 and therefore, the banks can further automatically delay the payments from the clients who are severely affected in COVID-19 situation.
  • The Scheme imposes an obligation for the bank to submit a collateral to Central bank whose value is equal or greater than the loan taken from the Central Bank.
  • The Scheme obliges the banks to provide an evidence regarding the usage of loan that is only for deferred payments purposes towards their clients. However, if the bank fails to provide such evidence to the Central Bank, the bank would be under an obligation to pay a default rate of 10% per annum on the borrowed amount.
  • The Scheme mentions the limitation capacity of the bank to borrow loan which is directly proportional to the bank shares in lending to the corporate entities or clients in the market.
  • The Scheme prohibits the banks to charge any additional interest rate or fees while allowing deferred payment under the Scheme.
  • The Scheme allows banks to raise 60% of their capital reservation buffers, however, the banks which has been designated as domestically important by Central Bank will be able to use 100% of their capital buffer.
  • The capital buffer which offers additional liquidity in the bank is available until 31 December 2020 as per the Scheme.
    • The measures presented by Central Bank give banks registered in the UAE the capacity to deferred installments anticipated from their customers that are impacted by the COVID-19 pandemic.

      Relying on the statistics, more than half of the facilities offered by the Scheme has been utilized, all things considered, there will keep on being various alterations to existing business offices and rescheduling of installments, as corporates are compelled to work in problematic conditions due to COVID-19.

      All our readers shall approach the Legal Consultants of Dubai in order to understand the latest updates in the rules and regulations issued by the government which are being altered on daily basis.

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