Covid-19: An Overview of the Financial Stimulus Program
Keeping in line with the current situation due to coronavirus pandemic, the UAE central bank has announced a financial stimulus package of AED 100 billion on March 14, 2020.
The main objective of this package is to offset the consequences of this viral outbreak by helping the SMEs, which may be amongst the organizations that have suffered the hardest hit.
The pandemic has also affected those businesses that operate in the affected sectors such as recreation and travel. There is, of course, sudden pressure on cash flows, and therefore, giving the businesses a financial boost is very important to ensure that their continuity.
This stimulus program will ensure sufficient liquidity within the local banking sector and provide support to the economy of the nation. This Targeted Economic Support Scheme involves AED 50 billion from funds of the Central bank via collateralized loans at 0 costs to all the banks that operate in the UAE. The remaining AED 50 billion funds are freed up from the capital buffers of the banks.
If you work in the UAE, irrespective of whether you are an employee or you run your own business, take a look at what this economic stimulus package will mean for you.
What is Included in this Economic Stimulus Program?
Reducing the Burden on those Buying House for the First Time
The Central Banks have asked the banks to raise the LTV or loan-to-value on mortgages for the first-time purchasers of property by 5%.
Hence, if you are an expat in the UAE who wants to buy your first house (which is valued around AED five million), you can easily avail of a home loan that amounts to up to 80% of the value of the property.
Benefits in terms of Debt Repayments
The private banks have been directed by the UAE Central Banks for offering the borrowers relief from the scheduled installments of debt of up to 6 months. When it comes to the customers, the slowdown of the economy will increase the risk of salary cuts and lay-offs.
In this case, the facility of postponing the repayments of the loan may help in ensuring that the residents can afford their living expenses and important financial commitments on priority.
Reducing the Requirements of Minimum Balance and Other Charges for the SMEs
The central bank has instructed the private banks to reduce the minimum balance eligibility for the business accounts of SME customers to AED 10,000. This will give a boost to the accessibility of cash reserved to small businesses. Moreover, the charges for minimum balance will be waived off for a term of 3 months.
The governments of Dubai and Abu Dhabi have also announced a separate financial stimulus package in their respective Emirates to give a push to the slowing down economy.
On March 22, 2020, the UAE Cabinet also approved an additional AED 16 billion stimulus program for supporting the national economy. Including the values of all these packages announced for surviving this challenging condition, the total value is accounted to be AED 126.5 billion.
The central banks and the governments of the nations that have been badly impacted by the novel coronavirus pandemic have also announced monetary and fiscal stimulus programs. This will help in supporting bank lending and offering financial help to the small & medium-sized organizations and retail customers that are worst-hit in this pandemic.
Keeping this announcement in consideration, it seems that the banks will have the power to determine who all are eligible for this temporary relaxation from debt repayments, and what all debts are included (such as credit cards, business loans, personal loans in UAE, mortgages, commercial vehicle loans, etc.).