Impact of COVID-19 on Banks, Insurance companies and the Economy of the UAE: Key Considerations

The outbreak of Covid-19 has been classified as a pandemic by the World Health Organization. Affecting approximately over 100 countries and territories, not only has it become a public health emergency, but with its growing effect and the precautionary measures being undertaken globally, it has also shaken the world economy; the effects of which are unlikely to wither away quickly.

Some of the reasons behind this economic disruption include:

  • Travel restrictions being imposed on air and/or sea traffic which is affecting the global supply chains – this has affected the tourism and transportation industry and is also resulting in shortage in the supply of materials to businesses.
  • Quarantine and self-isolation regimes that are being imposed are resulting in staffing shortages and business interruptions as businesses are required to put in place contingency arrangements such as requiring employees to work from home, upgrade IT systems, etc. This also increases the costs of working for businesses.
  • Volatility in the market with the tourism/ transportation industry being affected (visa/ travel restrictions that have been imposed for an uncertain period of time), massive drop in oil prices (which will affect the UAE’s economy as it largely depends on oil exports), and fluctuation in the capital markets


In this article, we shall be briefly discussing what businesses can do in this current climate to mitigate their loses, along with the initiatives that have been taken by the UAE Government that should be taken into account for contingency planning.


Article 273 of the UAE Civil Code


With this increased uncertainty and volatility in the market, individuals and businesses are being impacted financially and there are concerns mounting regarding their liquidity and solvency to withstand the repercussions of this outbreak. In light of this, it is crucial for businesses to examine existing contracts to evaluate the businesses’ rights and obligations in this current market, and if there is any room for suspension/ termination of obligations in light of any force majeure clauses in the contract.


In this regard, we refer you to Article 273 of Federal Law No. 5 of 1985 (“UAE Civil Code”), which states:


1. In bilateral contracts, if a force majeure arises that makes the performance of the obligation impossible, the corresponding obligation shall, be extinguished and the contract ipso facto rescinded.


  1. If the impossibility is partial, the consideration for the impossible part shall be extinguished. This shall also apply on the provisional impossibility in continuous contracts. In both instances the creditor may rescind the contract provided the debtor has knowledge thereof.”


As per Article 273 of the UAE Civil Code, a contract may be rescinded (fully or partially as may be applicable) in the event performance becomes impossible. This has to be more than mere hardship to perform the contract, as the law requires “impossibility” of performance. The law does not define what this consists of but it is generally narrowly construed by courts. Whether the coronavirus outbreak would fall under the definition of a force majeure event would depend on the wording of contract; the interpretation of which shall be ultimately be at the court’s discretion. Common examples include unforeseeable events such as natural disasters, “acts of God”, wars or strikes/ industrial action.


In the event coronavirus is not considered an event of force majeure, it may be possible for the parties to rely on Article 249 of the UAE Civil Code that gives courts discretion to relieve a party from an obligation that becomes burdensome due to “public exceptional unpredictable circumstances”.  It states,


If public exceptional unpredictable circumstances shall arise, and their happening has resulted in making the execution of the contracted obligation, if not impossible, has become burdensome to the debtor in such a manner as to threatening him with heavy loss, the judge may, according to circumstances and by comparing the interests of both parties, reduce the burdensome obligation to reasonable limits, if justice so requires. Any agreement to the contrary is void.”


Again, whether the effects of coronavirus would be sufficient to relieve a party from its obligations under this article would be at the discretion of the courts and is likely to be determined on a case-to-case basis.


Notwithstanding the foregoing,  if the wording of the contracts and the above articles of law does not come to rescue, individuals/businesses may consider turning to their insurance policies to check if their losses will be covered, or whether a pandemic like the coronavirus is excluded from their policies.


At this stage, the crucial point for businesses and individuals should be to check the wording of their contracts and insurance policies carefully to understand their implications in the current situation. We are yet to see this debate in court; however, a starting point would be to examine the wording closely to get a fair idea of the potential consequences for the individuals/ businesses and to be aware of its obligations and liabilities as that would aid in their contingency planning.


UAE Government Initiatives


In addition to the foregoing, we also wish to highlight that in light of the current situation, the UAE Government is taking initiatives to mitigate and combat the consequences of this pandemic. This article will discuss two such initiatives taken by the UAE Government that affect the banking and insurance sector of the country.


  1. UAE Central Bank Stimulus Plan


The Central Bank of UAE has launched an AED 100 billion stimulus scheme to combat the economic repercussions of the coronavirus outbreak. The scheme is called the “Targeted Economic Support Scheme” which has been implemented with immediate effect from 15 March 2020 by Decision No. 33/ By Circulation/2020 (Notice no. CBUAE/BSD/N/2020/1479). As per this scheme, AED 50 billion shall be provided by the Central Bank through collateralized loans at zero cost to all banks operating in the UAE and AED 50 billion will be freed up from the banks’ capital buffers to facilitate the lending facilities of banks[1].


In addition, the Central Bank, inter alia, directs banks and financial institutions to take the following steps to provide relief to its customers, which include private organizations, individuals and SME’s:


  1. Offer payment deferral relief for a period of up to 6 months on installments of loans (principal and/or interest/ profit) as rescheduling of loans will prevent borrowers from defaulting on their payments
  2. Provide additional financing at reduced rates including but not limited to, working capital relief, granting new credit lines, rescheduling of loans and reducing fees and commissions to ensure businesses remain solvent during the time of this crisis
  3. Not charge customers receiving relief under this scheme any fees, penalties or interest in connection with the payment deferral relief and/or increase interest rates. Further, any late payment fees charged shall be reversed within 30 days.


The aim of this scheme is to facilitate and aid the private sector businesses (including individuals and SMEs that have lower risk appetite) by providing temporary relief from payments on outstanding loans and having easier access to additional loans/ funds from the banks in the UAE.


  1. UAE Insurance Authority Circular


In addition to the foregoing, the UAE Insurance Authority has issued Circular No. 3 of 2020 which provides guidance to insurance companies and insurance related professions in the UAE on precautionary and preventive measures to maintain public safety and health and prevent spread of coronavirus.


Briefly, the circular requires insurance companies and insurance related professions to comply with the following:


  1. Adopt policies and take measure to reduce risks associated with the consequences of coronavirus on the insurance sector in the UAE
  2. Take appropriate decisions to support its customers and policyholders affected by the coronavirus outbreak, as the insurance company will remain responsible for any decisions taken in this regard, taking into account its financial position, solvency and liabilities
  3. Activate a “Disaster Recovery Plan” to ensure the business continuity for the insurance company, and the plan should include at least the following:
    1. A list of jobs the insurance company needs to keep the business running
    2. Ensure there is sufficient equipment to keep the insurance company’s business running remotely
    3. Provide the necessary finance to keep the insurance company running, and have the budgets approved by the management
  4. Comply with all the instructions issued by the competent authorities in the UAE, including quarantine regimes imposed and travel restrictions
  5. Ensure employees with symptoms similar to the symptoms of coronavirus are working from home, and take the necessary treatment and/or take preventative measures by requesting even unaffected employees to work from home for a certain period of time
  6. Cancel all internal events that require presence/ gathering of employees
  7. Emphasize on the necessity of implement continuous cleaning and sterilization at the insurance company’s facilities
  8. Consider applying flexible working hours for mothers with young children
  9. Publish emergency numbers for the company’s employees


The aim of this Circular is to ensure that insurance companies take adequate measures to remain operational during this period and serve its customers, as we are likely to see an increase in insurance claims in this time. As mentioned above, this would also turn on the wording of the insurance policy, interpretation taken by the courts and the directives/ regulations issued by the Government in this regard.




The UAE Government is working towards ensuring that the repercussions of this outbreak are minimized by taking such initiatives to safeguard the economic interests of businesses and individuals. However, we wish to highlight that this is independent to the contractual obligations that businesses/ individuals have already entered into, which shall continue to stand unless some relief is available under the contract and/or granted by the court as per the applicable laws – the same shall have to be determined on a case-to-case basis with careful consideration regarding the type of contract (such as employment contract, suppliers contract, etc.) and the surrounding circumstances. The support provided by the UAE Government, along with a holistic review of the business contracts would aid in contingency planning during this current market situation. Please feel free to contact us for further assistance/ information.



Author: Hiba Khan ( Former Employee)

Disclaimer: This publication does not provide any legal advice and it is for information purposes only. You should not rely upon the material or information in this publication as a basis for making any business, legal or other decisions. Any reliance you place on such material is therefore strictly at your own risk.