Dr. Bernd Van Linder, Commercial Bank of Dubai’s Chief Executive officer, discusses the effects of Covid–19 on the economy in general and the banking sector in specific, and the measurements taken by CBD to cope and overcome the challenging times.
* The consequences of the Corona pandemic continue to plague economies around the world, Governments in many countries have introduced extreme support measures to mitigate the financial and economic impact of the pandemic, including a set of bank loan programs and unlimited lines of credit to overcome any shortage of liquidity, what are the implications on the banking sector? And how to treat and confront this?
As opposed to the Global Financial Crisis of 2008/2009, with the Covid crisis the financial sector globally is part of the solution rather than the problem. Central Banks and commercial banks all around the world have been actively supporting the economy and their customers. The Central Bank of the UAE has been providing early and massive support to the economy, using the banks as a conduit. In line with the Central Bank guidance, CBD has been very active in supporting our customers on both the retail and the corporate front through deferring, reducing or restructuring their financial obligations
In March 2020, the Central Bank of the UAE (CBUAE) unveiled a Dhs100bn economic stimulus package, the Targeted Economic Support Scheme (TESS), to help businesses counter the economic fallout of the Covid-19 pandemic and increase liquidity within the banking system. It included Dhs50bn of zero-interest, collateralized loans for UAE-based banks and Dhs50bn funds freed up from banks’ capital buffers.
Participating banks were able to use the funding to offer temporary relief to private sector and retail customers, initially for a period of up to 12 months, which has now extended till June 2022. The scheme also aimed at easing principal and interest payments on outstanding loans.
The TESS program has provided a positive impact for the UAE’s banking sector and the wider economy as it came at a critical juncture and ensured that banks were able to mitigate funding and liquidity pressures and maintain their lending capacity. More than 320,000 customers, including individuals, small to medium-size enterprises and other private corporations, have benefitted from it, and as of date there are around 175,000 customers under the current TESS deferral arrangements.
Recently, the UAE Central Bank further announced an extension to parts of the Targeted Economic Support Scheme (TESS) with the AED 50bn zero cost loan facility for banks extended to end-June 2022, while the central bank’s financing for loan deferrals under TESS has been extended to end-2021. Both measures had been due to expire at the end of June this year.
In addition to introducing the Targeted Economic Support Scheme (TESS), the Central Bank of the UAE has also reduced the capital required for banks to hold for their loans to SMEs by 15 to 25 per cent. The CBUAE also increased by 5 percentage points the loan-to-value (LTV) ratios applicable on mortgages for first-time home buyers, ensuring that houses are affordable without associated inherent risks.
Today, the overall liquidity of the nation’s banking system is as strong as it was before the onset of COVID-19, owing to the measures that the UAE government has taken along with the UAE Central Bank which have helped in minimising the economic impact.
* What about the measures taken by your bank during this period and what was their impact?
CBD introduced a series of initiatives under the theme “Together we will win”, aimed at offering extended help and flexibility for individuals and businesses which had been impacted financially by the coronavirus global pandemic. This is aligned with the bank’s commitment to continue to support its customers in both good times and in challenging times, and to maintain the resilience of the UAE’s economy and banking sector.
The initiatives introduced by the bank included the following:
For individual customers:
– Payment Holiday: All customers of the bank have been offered the option of a payment holiday on their personal and auto loans, mortgages, and credit card payments.
– Payment Deferrals: Customers who have been impacted by COVID-19 were able to defer their instalments for upto three months without any additional bank charges.
– Mortgage Relief: Mortgage applicants were able to get interest-only loans for 12 months as well as an additional 5% in the Loan to Value ratio.
– Cash Withdrawals: Debit Cardholders were able to withdraw cash across any bank ATM in the UAE for free.
– Flexible Payment Plans: Credit card holders were able to convert their outstanding balances into flexible payment plans at a reduced rate.
– 0% Easy Payment Plans: Credit card holders were able to avail a 0% payment plan on school tuition fees and supermarket spends.
– Travel Charges Waiver: Customers who cancelled their flight tickets and hotel bookings during April to June 2020 had their forex/DCC charges waived by the bank.
– Online Shopping Incentives: CBD cardholders got upto 25% cashback on various spends including grocery, online streaming, online shopping and many more from reputed brands such as Netflix, Amazon, Noon and Zomato.
– Assistance for Digital Registration: A dedicated Call Center helpline was established for customers who needed help with digital transactions.
For SMEs and corporates:
– Payment Deferrals: Businesses which have been impacted by COVID-19 were able to get a deferral on their instalments for upto three months without additional bank charges.
– No Minimum Balance: SMEs benefitted from the zero balance account – the CBD Starter account, offering SME’s greater flexibility on their finances.
– Discounted Digital Transactions: The bank actively promoted its digital and contactless solutions, offering customers the ability to transact safely from their home or office. SMEs and corporates got free enrolment to the bank’s digital platforms to perform their daily banking transactions, as well as benefitted from reduced fees on the other services.
– Discounted Remittances: Domestic and international remittances via the bank’s digital platforms were at reduced rates, since manual remittances across the branch counters were discontinued effective 30 June 2020.
– KYC Updates Digitally: Customers were able to update their Trade License details digitally.
– Real time Transaction Status: Customers can securely upload Exports Collection Documents digitally through the bank’s online banking platform and get real time updates on transaction status.
* Have Arab banks succeeded in overcoming the pandemic crisis? What about its preparations for the next stage?
As we look back on the 2020 Covid crisis, we should be proud of the way governments and banks have responded to a crisis that wasn’t on any organization’s radar. Faced with branch closures, and the need to expand end-to-end process digital capabilities, I believe that we did things that once seemed impossible. Despite some hiccups, banking operations were executed smoothly. Customers were served, employees were productive, and regulators were reassured. Banks effectively deployed technology and demonstrated unprecedented agility and resilience.
The success of a bank going forward will be based on its ability to be agile. The landscape of the financial sector is changing dramatically. With technological disruption, the emergence of new entrants, both fintechs and digital giants, as well as the constantly evolving customer expectations, organizations are forced to continuously adapt to these changes and deploy an agile organizational model.
* The Director of the Middle East Department at the International Monetary Fund, Jihad Azour, called the Arab countries to diversify their economies and carry out structural reforms to correct the deformations occurring in them. What role can the Arab banking sector play in this field?
The success of Dubai shows that economic diversification is key to economic growth. Across the region the expected drop in hydrocarbon reserves and revenues has long motivated Arab countries to diversify their economies by developing productive sectors outside oil and gas. The UAE, has positioned itself as a financial, business, and logistics hub for the region, something that might have been difficult to imagine fifty years ago. The banking sector has played a vital role in this transformation by financing UAE’s trade and development projects, as well as infrastructural projects, promoting the development of trade, business, industry and services throughout the federation. Banks will continue to be an integral component of a nations’ development agenda.
* Many banks around the world have begun to think of new solutions to allow their branches to adapt to the next stage in which customers are expected to stop visiting branches due to the use of the Internet in completing banking transactions.
Where are you as a bank from this trend?
There’s a popular misconception that the days of the bank branch network may be over, but the reality is more complex. I believe the future is a hybrid model of high quality, full service branches combined with a fully-fledged digital service offering. In essence, all banks will become digital banks supplemented by a branch network, not unlike Amazon having physical stores. Our customers have the choice and convenience of using the digital channels for all of their day-to-day requirements, but in case they need personalized advice or are looking for products such as investments or a mortgage, they can come to our branches and meet with the specialized advisors. The key is to ensure all services are available on the digital channels, and position branches as value-adding advisory centers.
