When COVID-19 struck in early 2020, the Gulf economies were hit by a double shock: collapsing oil prices and the sudden halt of domestic activity. Lockdowns rippled across the region, malls went dark, SMEs bled cash, and households saw their income vanish overnight. Within days, the six central banks of the GCC — the CBUAE in the UAE, SAMA in Saudi Arabia, CBK in Kuwait, CBB in Bahrain, CBO in Oman, and QCB in Qatar — rolled out emergency loan deferral programs to prevent a financial crisis from spiraling into a social one.
In total, more than USD 200 billion in liquidity, guarantees, and deferred repayments were mobilized. The focus was clear: protect SMEs and retail borrowers, the most exposed segments of society. Yet while the goal was shared, the execution differed markedly across borders, particularly in how each country handled interest accrual and capitalization — the fine print that often determines who truly bears the cost of relief.
Models and Mission
The UAE’s approach, under the Targeted Economic Support Scheme (TESS), was to let interest continue accruing during the deferral period, but at a subsidized cost. Banks received zero-cost funding from the CBUAE, which allowed them to extend relief without compounding interest on borrowers. The deferred amounts were simply added to the end of the loan term. In effect, the UAE spread out the pain without passing on extra costs to households or SMEs.
Saudi Arabia, by contrast, took a bolder approach. Its Private Sector Financing Support Program, worth SAR 50 billion, provided zero-cost repos to banks so they could defer SME payments without charging interest or fees. The program ultimately covered over 107,000 loan contracts, worth SAR 181 billion, and was extended four times, up to March 2022. “If SMEs die, the recovery dies,” SAMA declared early in the pandemic. The Saudi model stood out for its simplicity: no interest, no capitalization, no penalties — just liquidity and breathing room.
In Kuwait, the government went a step further. Through Law No. 3/2021, the state treasury directly reimbursed banks for the revenue they lost during the six-month deferral period. Borrowers faced no interest accrual and no credit-score penalties. Deferred loans were not classified as past due, protecting both borrowers and banks from unnecessary distress. The government absorbs the cost. The Kuwaiti model was notable for its fiscal generosity and social tone — a deliberate effort to insulate citizens from financial harm.
Bahrain, whose circulars in 2020 focussed on borrower protection. The circulars explicitly prohibited interest-on-interest, capitalization, or fee increases during deferrals. Borrowers’ original loan balances were frozen, and when repayments resumed, they continued with the same installment and interest rate as before. This transparent, no-surprises approach prioritized fairness over complexity. Transparency and fairness became Bahrain’s hallmark during the crisis.
Comparing Relief Philosophies
Across the region, each central bank struck a different balance between fiscal burden and financial discipline. The UAE’s design was pragmatic — relief through liquidity and deferral, but with some accrued cost. Saudi Arabia and Kuwait both offered interest-free moratoria, though Saudi relied on central bank liquidity while Kuwait leaned on government spending. Bahrain, for its part, ensured borrowers paid not a single dinar more than originally agreed, setting a benchmark for consumer fairness in the region.
All four countries — in their own ways — proved that decisive monetary policy could soften an economic freefall without destabilizing the banking sector.
Soft Landing
Despite the scale of disruption, the GCC’s financial systems emerged remarkably stable. According to the IMF, non-performing loans rose by less than 2% across the region, a minor uptick given the shock. Surveys by central banks showed that more than 85% of deferred borrowers resumed payments once programs ended. By mid-2022, most deferrals had been phased out, though the UAE and Saudi Arabia continued case-by-case support for SMEs still struggling to recover. In the end, the coordinated interventions prevented a credit crisis, preserving confidence in both lenders and borrowers.
Lessons for the Next Crisis
The pandemic underscored four key lessons for policymakers. First, speed matters — all six GCC central banks acted within two weeks of the initial lockdowns, a rapid response that prevented panic. Second, subsidies outperform mandates; programs backed by zero-cost central bank funding or government reimbursement were far more effective than forced fee waivers. Third, clarity prevents confusion — Bahrain’s outright ban on capitalization showed the value of simple, transparent rules. And fourth, SMEs must be protected early, as they serve as both employers and economic shock absorbers in the Gulf.
The Gulf’s response to COVID-19 was not merely an exercise in monetary management. It was a lesson in policy coordination, crisis communication, and social contract renewal. The region’s central banks didn’t just defer loans — they engineered a soft landing for millions of citizens and small businesses. They did so with a blend of state funding, central bank liquidity, and regulatory restraint rarely seen in tandem.
When the next storm arrives — whether financial, geopolitical, or environmental — the blueprint is ready. The “no capitalization” clause: a small technical decision embodied fairness, foresight, and the human side of finance.
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