CBUAE Provides Guidance on Application of IFRS 9 and TESS Facility
CBUAE issued guidance to financial institutions on the application of International Financial Reporting Standard (IFRS) 9, post a stakeholder consultation. The guidance is intended to ensure that credit losses resulting from the consequences of COVID-19 pandemic are appropriately calculated. IFRS 9 guidance proposes practical solutions to manage the impact of economic uncertainty on the estimation of expected credit losses, while remaining compliant with IFRS 9. The guidance also aims to ensure transparency and disclosures, contributing to strengthened financial stability in the UAE.
Additionally, CBUAE issued a notice that provides additional clarifications on deferral requests under the Targeted Economic Support Scheme (TESS) liquidity facility and aims to further facilitate implementation of the scheme, with the aim to encourage banks and finance companies to draw-down more from the TESS liquidity zero cost funding facility designated to be used by impacted private corporate customers, small and medium-size enterprises (SMEs), and individuals. Pursuant to the notice, all banks and finance companies are required to consider the specific circumstances of impacted borrowers to receive a deferral of repayment within the TESS, as options for granting deferrals include the following:
- Deferment of principal only, or
- Deferment of both interest/profits and principal repayment, or
- Deferment of interest/profits only
The notice highlighted that the most in-demand option will be for the deferment of both interest/profits and principal repayment, unless the circumstances of a borrower allow for accepting other options. CBUAE also welcomed initiatives taken by banks to support and relieve their impacted customers without drawing against the TESS program, which is available to them. In this notification, CBUAE has disclosed the list of banks that availed more than 50% of the allocated TESS liquidity facility, which aims to protect and support the impacted customers during such unprecedented times. To date, 77% has been drawn-down from the AED 50 billion liquidity facility within the Targeted Economic Support Scheme (TESS), equivalent to AED 38.5 billion of allocated funds.
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Keywords: Middle East and Africa, UAE, Banking, Credit Risk, ECL, IFRS 9, Liquidity Risk, TESS, COVID-19, CBUAE
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