Banks in the UAE are going to take the lead position in ensuring funds flow through the construction sector smoothly, and where possible allow contractors to overcome the constant problem of delayed payments.
The new attitude on the part of banks come into being as part of the additional responsibilities on the sector following the COVID-19 outbreak and what it has meant for the economy.
“Liquidity has always been an issue for contractors because of delays in payment,” said Mohammed Khader Al Shouli, Executive Vice-President and Global Head of Contracting Finance at Mashreq Bank. “The difference is that UAE banks are more open now to extend the repayment terms.
“When a contractor issues progress payment certificates (PPC), they get certified and get paid within 30-40-90 days by the project’s client. When that does not happen, the contractor has to arrange for it from own resources or wait until the client pays up.
“Today, we know there will be delays in those payments. So, if we had discounted PPCs, and it’s supposed to be paid within 30 days, we look at extending it based on tenor of the payment from the client. We will not force the contractor to pay up.”
UAE banks’ exposure to the construction industry is estimated at 15 percent plus.
Stimulus and more
Among the COVID-19 relief measures for the economy, the UAE Central Bank requires banks to be more lenient on payments due from clients – individuals and businesses alike. The message from the top is to give more flexibility on loan paybacks and in any transaction clients have with banks.
According to Al Shouli, easing contractors’ pain became a high priority area for banks in Dubai even before the Central Bank directives.
“In the first week of March itself, Dubai banks had made a joint statement in support of all companies affected by the COVID-19 spread,” he added.
The construction sector had been most vulnerable, with delays in payments reaching contractors at the top of the list. The sentiment among industry sources was that a COVID-19 led slowdown of the economy would further squeeze liquidity across all categories, with subcontractors most at risk.
The UAE has about $710 billion of building and civil engineering projects currently planned or underway. There would be revisions once the full impact of the COVID-19 impact is felt.