Introducing bankruptcy legislation for individuals, not just businesses, could be “suicidal” for the UAE unless proper risk mitigation measures are put in place, the chairman of the UAE Banking Federation (UBF) has warned.
The UAE’s new bankruptcy law is scheduled to come into force in the first quarter of 2017 but will only cover debt-ridden businesses, not individuals. The new law will also not decriminalise bounced cheques, it is understood. UBF chairman Abdul Aziz Al Ghurair, who is also CEO of Mashreq Bank, told reporters on Sunday that the government plans to examine the pros and cons of introducing similar legislation for individuals.
However, he indicated that it would be difficult to introduce such a law because “90 percent of borrowers are expats”. He said that any expat who declared themselves as bankrupt under UAE laws should also be forced to declare themselves as such in their home country, otherwise the banking system would fall apart.
“I think an individual bankruptcy law, without linking it to an expat’s own country, would be suicidal for the UAE,” Al Ghurair stated. “Ultimately, no customer would really be able to borrow money from the market [after declaring bankruptcy], and it would not be good for our banks, either.
“Given that 90 percent of our borrowers are expats, if they declare bankruptcy here, they will just go home and start again. So, what we would like to see is, if you declare bankruptcy here, you are immediately declared bankrupt back home. Wherever you come from, it’s also tagged.
“And for those countries who sign up to us, I think [UAE] banks would treat those nationalities differently and if the country does not have this linkage, then banks would just refrain from lending to those individuals. Life would be completely different for retail customers.”
Meanwhile, Al Ghurair claimed the UAE Banks Federation had made substantial progress on bailing out small-to-medium-sized enterprises (SMEs) even before the new insolvency legislation is enacted.
He said the initiative, dubbed ‘Modus Operandi’, which involves the federation’s 49 member banks, had helped to restructure AED4.5 billion ($1.2 billion) worth of debt owed by SMEs since March this year, and a further AED2.5 billion ($680 million) of debt owed by large corporates – AED7 billion ($1.9 billion) of debt in total.
These businesses would have “skipped” (fled the country) if the intervention had not taken place, said Al Ghurair. “We persuaded banks [against] pulling the trigger and taking them to court and that’s significant,” he said. “We basically got all the lenders together and encouraged them not to take unilateral decisions otherwise the customer would skip. The banks have taken on this responsibility and behaved extremely well.”
Up until Modus Operandi was launched in March, plenty of banks had been taking legal or criminal action against customers. “But they have realised that legal action does not help immediately. You have to go to the courts and the process is very long – years, even – so banks are willing to look for a workable solution.”
The forthcoming new legislation provides “peace of mind” to lenders and customers alike, he added.