The central bank of the United Arab Emirates stated on Sunday that it had reduced the reserve requirements of the banks for demand deposits by 50 percent for supporting the economy of the country during the coronavirus or COVID-19 pandemic.

The aggregate amount of all the capital and also the liquidity measures taken by the central bank since March is 256 billion dirhams, the Central Bank of the United Arab Emirates stated in a statement.

Deferral of loan principal and interest payments for customers was extended

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The bank halved the reserves requirements for demand deposits for all banks to seven percent from 14 percent, which it said will inject about 61 billion dirhams of liquidity to support banks' lending and liquidity management. The central bank also extended the duration of a previously announced stimulus package for affected retail businesses and corporates.

The deferral of loan principal and interest payments for customers was extended until the end of the year, and banks participating in the scheme can benefit from a capital buffer relief until December 2021. The value of the capital buffer relief is 50 billion dirhams. Banks are also allowed a "zero-cost funding facility" against collateral until the end of this year - a programme also worth 50 billion dirhams.

Banks will be allowed to use a third of their current liquidity buffers and have the flexibility to maintain a minimum loan coverage ratio (LCR) of 70 percent and a minimum eligible liquid assets ratio (ELAR) of seven percent. The overall release of regulatory liquidity buffers is estimated at 95 billion dirhams, the regulator said. CBUAE said it has collaborated with other regulators to issue guidance on financial reporting standard IFRS 9 for banks and finance companies.

IFRS 9 provisions will be gradually phased-in

"The planned implementation of certain Basel III capital standards will be postponed to 31 March 2021 for all banks, to minimize the operational burden on the financial industry during this challenging period," the central bank said. "CBUAE has issued a new requirement for all banks to apply a prudential filter to IFRS 9 expected loss provisions," the bank said, adding it aims to minimise IFRS 9 provisions' effect on regulatory capital "in view of expected volatility due to the COVID-19 crisis."

IFRS 9 provisions will be gradually phased-in during a five-year period through the end of 2024. The guidance was issued for public consultation on Sunday and is expected to be finalised by April 8.

"The additional measures announced today will effectively relieve the pressure on financial institutions, allowing them to continue to carry out their crucial role as the backbone of the economy while offering the required relief and continued access to funding for businesses and households," the bank's governor, Abdulhamid Saeed, said in the statement. Saeed was announced as the central bank's new governor on Thursday.

(With agency inputs)