How the UAE Central Bank’s Dh100bn stimulus package will help SMEs

UBF chairman Abdulaziz Al Ghurair says local banking sector is ‘well-positioned' to provide support to businesses

Abdulaziz Al Ghurair, chairman of the UAE Banks Federation, said the country's banking sector has sufficient liquidity. Pawan Singh / The National

The Central Bank of the UAE's Dh100 billion economic stimulus package rolled out on Saturday to offset the impact of the coronavirus pandemic will help small and medium businesses that are likely to be among the hardest hit, banking representatives and experts said.

The package will “give a significant boost to the UAE banking sector and have [a] far-reaching impact on various sectors that underpin the economy”, said Abdulaziz Al Ghurair, chairman of the UAE Banks Federation (UBF).

“The UAE banking sector has sufficient liquidity and is adequately capitalised and we are well-positioned to weather challenges that lie ahead,” he said.

The Targeted Economic Support Scheme includes Dh50bn from central bank funds through collateralised loans at zero cost to all banks operating in the UAE and Dh50bn of funds freed from banks’ capital buffers.

The package includes measures that will help facilitate access to finance for SMEs, reducing fees and removing hurdles to opening business bank accounts.

Small and medium-sized enterprises make up around 98 per cent of businesses in the UAE, according to Aim Start-up, a UAE Ministry of Economy initiative. The UBF estimates they represent over 60 per cent of the country’s gross domestic product.

“During these times of worldwide uncertainty, taking decisive measures like this one is key to ensuring a safe and stable environment, so we commend the UAE’s leadership for their quick efforts to protect businesses and safeguard the well-being of citizens,” Mr Al Ghurair said.

The move comes as countries worldwide are ramping up measures to contain the spread of Covid-19, including travel restrictions, business and school closures, event cancellations and home quarantine directives. The number of cases has climbed above 155,000 with more than 5,900 deaths. Around 75,000 people have recovered.

The UAE said it will “temporarily suspend” issuing most visas into the country, while flights to and from several countries will be halted from Tuesday. In both Abu Dhabi and Dubai, cinemas, theme parks and gyms have been temporarily closed.

The central bank has reduced the amount of capital banks have to hold for their loans to SMEs by 15 to 25 per cent, thereby facilitating access to financing. The change is broadly in line with the minimum standards set by the Basel Committee on Banking Supervision, a global body made up of central banks and bank supervisors.

It will also adopt new regulations to reduce fees incurred by merchants when their customers pay by debit or credit cards and limit fees charged by banks to SME customers. The central bank also stipulated that banks cannot ask for a minimum account balance of more than Dh10,000.

SME customers will be able to open bank accounts within a maximum time frame of two days, provided that the acceptable documentation is in place and the risk is acceptable in line with anti-money laundering and counter-terrorism financing regulations.

Under normal circumstances, opening a bank account can take new companies up to three months, according to a 2018 white paper from the Dubai Chamber of Commerce and Industry.

“It’s a really bold move from the regulator and hopefully it’s going to help SMEs,” said Saad Ansari, co-founder and chief executive of XPence, a start-up that offers digital business accounts for freelancers, entrepreneurs and small businesses.

“SMEs are having cash flow issues and I hope that the local banks will support the SMEs during this time to be able to get through this,” he added.

Separately, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, on Thursday unveiled an economic stimulus package worth Dh1.5bn to protect businesses from the effects of the coronavirus, especially in tourism, retail, external trade and logistics services.

A spokesperson from Dubai SME, an initiative of the Dubai Department of Economic Development, told The National on Sunday there would be an update "on our assessment of the prevailing situation and SME support plans in due course".