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Coronavirus: TESS scheme helps UAE banks help businesses

Out-Law News | 15 Apr 2020 | 8:48 am | 2 min. read

The Central Bank of the UAE has called on banks across the emirates to "accelerate" their implementation of support measures for businesses in light of the coronavirus pandemic.

Last month, the Central Bank outlined a package of measures, worth AED 100 billion ($27.2bn), which is designed to help banks to support retail and business customers in overcoming some of the economic challenges they are facing in light of the impact of coronavirus, officially Covid-19.

The 'targeted economic support scheme' (TESS), which was launched on 15 March, has three strands and has been put in place for a period of one year.

The first element is a zero cost facility, through which it is intended that up to AED 50bn ($13.6bn) in total is accessed by banks and used to provide temporary relief to loan customers in respect of repayments and interest due on those loans.

The second element provides relief from 'capital buffer' requirements banks are subject to, to enable the institutions to offer credit facilities set against some of the capital they hold in reserve.

The third element of TESS sets out conditions that the banks wishing to take advantage of the TESS reliefs must abide by when supporting customers. Banks must, for instance, offer payment deferral relief for a period up to six months on instalment of loans or financing, that customers are not charged fees, penalties or interest in connection to payment deferrals, and further ensure that the credit risk profiles of customers receiving the relief are not adversely affected, for example.

The Central Bank of the UAE (CBUAE) announced on 12 April that a total amount of AED 10bn ($2.7bn) has been provided to banks in the form of zero interest funding under TESS since its launch, and that more than AED 61bn ($16.6) worth of lowered cash reserve requirements has already been facilitated under the scheme.

It said: "The Central Bank encourages all boards and management of Banks to accelerate their confirmation to implement TESS measures as soon as possible. From our side, CBUAE will be reaching out to the banks during the coming days to better understand how they plan to serve the objectives of TESS and help their customers to cope with the consequences of COVID-19 pandemic."

CBUAE governor, Abdulhamid Saeed, said he believes TESS "will act as a catalyst to strengthen economic activity and effectively mitigate financial risk, while also ensuring that the businesses are prepared for the post-Covid-19 era".

Dubai-based Tom Bicknell of Pinsent Masons, the law firm behind Out-Law, said: "Banks have a crucial role to play in supporting businesses and individuals to keep afloat and mitigate the impact of Covid-19. Their provision of support to markets in the UAE in this unprecedented time will help companies and individuals to emerge from the other end of this pandemic on semi-solid ground."

"The measures announced by the UAE Central Bank – similar to provisions announced by other central banks worldwide – are intended to support and relieve the pressure on financial institutions, allowing them to offer the required relief and continued access to funding for businesses and individuals operating here in the UAE. The speed with which financial institutions are able to tap into these reserves and make these much-needed banking reliefs available will be very important."