The stimulus package will give a significant boost to the UAE banking sector. The UAE Central Bank's Dh100-billion stimulus package will provide additional liquidity to banks as well as boost property demand through first time buyers and provide cushion to small and medium businesses in tough times.
Analysts say that the benefits of stimulus package will trickle down to retail investors and smaller businesses, which will help the private sector to navigate through challenging environment with ease over the next six months as corporates are determined to fight Covid-19.
The central bank announced loans and advances to local banks at zero cost, waived certain fees for banks, reduced loan-to-value mortgage ratio for first time property buyers, issuing guidelines on margin calls to ease pressure on equity investors among others.
From the SMEs perspective, the package facilitates access to finance, reduces fees and removes obstacles in opening business bank accounts. It is not the first time that the UAE Central Bank stepped into the market. In 20018 financial crisis, the apex bank had pumped in Dh120 billion to support local banks after Dh100 billion were withdrawn due to credit crunch worldwide.
AbdulAziz Al Ghurair, chairman of UAE Banks Federation, said the stimulus package will give a significant boost to the UAE banking sector, and have far-reaching impact on various sectors that underpin the economy.
"During these times of worldwide uncertainty, taking decisive measures like this one is key to ensuring a safe and stable environment... The UAE banking sector has sufficient liquidity and is adequately capitalised, and we are well-positioned to weather challenges that lie ahead," said Al Ghurair. According to Akbar Naqvi, CEO of Zasar Holdings, the UAE is looking to stay ahead of the curve and create an environment where the smart can survive.
"Companies that stress-tested their balance sheets will come out of this to fight another day, while companies that did not will learn a painful lesson. But at least the UAE Central Bank actions and measures will give everyone a chance to survive what is essentially a difficult part of a new cycle," said Naqvi.
Robert Thomas, head of agency at real estate consultancy Cushman & Wakefield Core, said with most businesses facing challenges due to the ongoing uncertainty caused by Covid-19 and follow on effects starting to be seen in the hospitality and retail asset classes, UAE Central Bank's Dh100 billion stimulus package definitely acts as a relief and positively impacts the market sentiment.
"This shows the proactive approach of the government to adapt and provide support to its consumers. The proposed ease of access to finance for SMEs along with the increase in the loan-to-value ratio by five percentage points for first time buyers is expected to further improve affordability and buoy demand," said Thomas.
Lewis Allsopp, CEO of Allsopp & Allsopp, believes that the central bank initiative will help ensure property market stays buoyant and this kind of proactive approach is hugely reassuring.
"The loan-to-value (LTV) increase of five per cent for first-time buyers is something that has been long mooted, even before the Covid-19 outbreak, and it now gives buyers who are saving for a deposit a helping hand to make their first UAE property purchase. This is coupled with interest rates being at their lowest levels for a long time and property prices being at an attractive and affordable level," he said.
"Something that may be missed by many is the central banks instruction to be considerate to those with a current mortgage at the moment and offer assistance where necessary. This adds a level of comfort and confidence in to making an investment in Dubai."
Allsopp noted that since outbreak of Covid-19, buyer and tenant registration levels along with transaction levels have not dropped.