UAE central bank to introduce new liquidity management resource

The intraday facility will allow counterparties to borrow from the regulator to settle short-term funding mismatches

The UAE Central Bank in Abu Dhabi. The regulator is set to introduce a new intraday liquidity facility from April 21. Ryan Carter / The National

The Central Bank of the UAE is launching an Intraday Liquidity Facility that will allow licensed financial institutions to mitigate intraday liquidity risks.

The new liquidity management facility will be introduced on April 21 as part of the central bank’s new Dirham Monetary Framework, the CBUAE said in a statement on Thursday.

It will allow eligible counterparties – participants in the UAE Funds Transfer System – to access funding in UAE dirhams from the central bank on an intraday basis to make sure payments are settled on a real-time basis.

To obtain intraday funding from the CBUAE, participants are required to submit "eligible collateral", with terms set out in the conditions of the new facility. The ILF will be offered at zero cost to incentivise financial institutions to repay borrowed funds by the designated cut-off time at the end of each business day, the CBUAE said.

“The launch of the Monetary Bills programme earlier this year, along with the existing Islamic Certificates of Deposits programme, facilitates the development of this innovative facility," Khaled Mohamed Balama, governor of the CBUAE, said.

“I am confident that the financial markets infrastructure deployed for this facility will not only enable licensed financial institutions to mitigate intraday liquidity risks, when there are timing mismatches between their daily inflows and outflows, but also help increasing efficiency of payments through the UAE Funds Transfer System.”

President Sheikh Khalifa appointed Mr Balama as governor of the CBUAE on Wednesday. Later that day, the regulator also announced its decision to extend the Targeted Economic Support Scheme (Tess) to the end of 2021. The Dh50 billion ($13.61bn) zero-cost funding programme was set up a year ago to help lenders maintain funding flows through the economy following the onset of Covid-19.

Last month, the CBUAE said liquidity in the banking system has returned to pre-Covid-19 levels and that lenders had substantially reduced their use of Tess. The amount being drawn down last month declined to Dh22bn, half of the maximum drawdown of about Dh44bn in second quarter of last year at the height of the pandemic induced-slowdown.

The UAE's banking regulator has introduced various measures to develop the banking sector and improve payments systems in the UAE.

In March, it introduced new rules that address large-value payment systems (LVPS) and retail payment systems (RPS) that apply to remittance companiesoperating in the UAE and payment schemes that offer clearing or settlement in dirhams outside the country.

The regulator has also taken more measures to protect consumers and in February it introduced the UAE's first financial consumer protection regulatory framework, which provides a "broad spectrum of appropriate behaviour and conduct expected of licensed financial institutions".