Impact of Coronavirus on Banking in UAE

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All of us have read about pandemics and epidemics in our history books, but who would have thought that we would be facing one in this lifetime. The novel coronavirus has captured our world unaware and brought with it the feeling of uncertainty and fear.

In such changing times, since most of the people throughout the globe have limited themselves to the security of their houses, the financial markets and economies are slowing down. With the situation evolving, our attention is directed towards the financial effect of this pandemic in our lives.

While social distancing is the best way to stop the spread of the virus, the businesses across are world is going down. The governments are doing all they can for containing the impact of the outbreak on the economic condition of the country.

Keeping in line with this, the UAE Central Bank has suggested that all the banks in the UAE must offer temporary relief to the borrowers of loans by providing a postponement on the loan payments monthly. It has also suggested that the commission and fees should be reduced for those customers who are infected by COVID-19.

FAB (First Abu Dhabi Bank)

FAB has announced certain measures that have been implemented with effect from April 1st, 2020. The banks will offer deferred EMI payments for mortgages, personal loans, and car loans from between 1-3 months for individual customers who have been impacted by the virus. The mortgage loans from FAB will be offered a benefit of reduction of 5% towards down payments (only first-time property buyers are eligible for this benefit).

The bank is working in harmony with its customers for understanding the impact of coronavirus pandemic on them. This is helping them to offer their support in terms of loan deferment or restructuring. No loan deferment charges will be levied by the bank.

FAB will continue to support its customers by offering them loans depending on the existing policies. They will also get help from the bank in the form of a grace period of up to 3 months for the 1st installment by reducing the prices.

The EMI deferment is supposed to be a temporary arrangement, which offers you the benefit of postponing your EMI payments. It will help you in reducing your financial stress and increasing the income that you can spend. The postponed loan installments will be divided over the outstanding loan duration.

The maturity period of the loan will get extended by 1-2 months as per the choice of the customer. The outstanding personal loan interest rate in UAE over these 1-2 months will get adjusted across the remaining duration of the loan. Hence, the last EMI will rise marginally. 

ADCB (Abu Dhabi Commercial Bank)

ADCB offers EMI postponement and also waives off interest. The borrowers can avail of the relaxation of EMIs for three months of the existing as well as new loans. Apart from this, the other relief measures involve benefits on down payments, school tuition schemes and service charges, reduced minimum balance needs, reduced charges on interest, as issued by the Government of Abu Dhabi.

The authorities in the Emirate of Abu Dhabi have announced a package for SMEs with the banks based in the Emirate.

All of these measures will remain in force until June end in 2020. The bank said that its customers, no matter businessmen or other individual who are infected by the novel coronavirus will be offered a benefit of deferred loan EMIs.

The personal loan interest rate in UAE, as well as the rate of interest on other kinds of loans, will be waived off for the duration of 6 months. This, however, will depend on a suitable scrutiny level.

While the authorities are trying their best to contain the spread of the virus, people are getting stressed about their finances making them learn some valuable financial lessons, which all of us must learn from such a crisis. Here are some of these lessons.

1.     Do Not Depend on your Investments at the Time of Emergencies

Let us take a look at the present situation. Now, assume that there is an investor who did not open an emergency fund and put all his money in investment portfolios. While we are in the middle of these difficult times, it has become quite difficult to redeem these investments.

Hence, when you think about emergencies, you cannot take investments into consideration as your emergency fund. The money in your savings account is the only definition of emergency funds, which matter.

2.     Always Creating a Diversified Portfolio

In terms of investment, the importance of building a diversified portfolio is felt when the economy is slowed down and the market is rattled due to events such as this pandemic. While hedging has amazing benefits during a stable time in the market, diversification will come to rescue during the turbulent times.

In case your investment is inclined towards any specific securities group or an asset class and the crash has an adverse effect on it, then you may face huge losses.

On the other hand, a diversified investment portfolio includes securities, which are not correlated to one another. Hence, even when one of the securities group or asset class gets impacted, your portfolio won’t end up in huge losses. So, it is important to create a diversified portfolio for making sure that your overall risks are low and if there is a crash in the marker because of any reason, you don’t have to face heavy consequences. 

3.     Live within the Budget

Making a sound budget is important for managing your personal finances. A lot of households have gained from budgeting for decades. But some people do not believe in leading their financial lives with a budget. They never take the effort of getting used to it.

When an unfortunate event such as this pandemic takes place, the income generally slows down or gets restricted for some time. This leads to a rise in the living cost and reduction in the resources available. During such times, if you get used to living in a budget, then you will be able to manage your finances better.

4.     It is important to have an Alternate Source of Income

Although it may seem to be hindsight now, even when we are not hit by a pandemic or other such events, maintaining a secondary income source can help you in increasing your savings, allocating more money towards investment, and meeting your financial objectives sooner.

Moreover, having a secondary income source will give you something at least to fall back or rely on during emergencies like such a pandemic.

For instance, you can have a look at some freelance work and build your portfolio gradually with time so that it can be leveraged when needed. Your secondary income source must be different from your primary income source for contingencies.

5.     Having an Emergency Fund

We have already mentioned the importance of maintaining an emergency fund above. Each financial expert would plan their finances after they accommodate at least 3-6 months of their living costs as emergency funds safely deposited in their savings account.

This time duration has been calculated after considering many factors and has been designed to assist you in clearing your bills and meeting your cost of living easily until the residing crisis passes. However, there are not many people who actually focus on this bit of the advice.

We have spent our lives living with the attitude ‘when the time comes, things will be managed’. This mentality keeps us away from maintaining an emergency fund before actually stepping into the world of investments. Moreover, because this fund does not give any tangible returns, many people consider it to be needless and hence, avoid maintaining it. But whenever we face an emergency, such as the current pandemic, we suddenly realize the importance of being prepared for emergencies- physically, financially, and mentally.

To Sum Up!

You must visit the websites of your banks or use the phone banking or contact the relationship manager and request them for deferment on your loan EMIs, following the instructions. They might ask you to submit an online application form and give them some additional documents for availing of the benefits or facilities.

However, the processes may be different from one bank to another. It may also vary between an individual to a business enterprise. It is recommended that you do not visit the branch of the concerned bank. Try to do as many things online. Use the alternate methods and maintain your EMI payments.

For bearing the situations like the one we are in currently, you need to be sufficiently prepared for emergencies. This will make in a better position to fight the storm and quickly recover as soon as things settle down. We pray and hope that all of us manage to survive this situation unscathed and have the strength to make better and sane financial decisions.

Stay Healthy! Stay Safe!

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