From boom to bust

zoom

Lloyds TSB has a dedicated team of financial experts willing to discuss payment options with cash-strapped clients.

zoom

Bounced cheques are a criminal act in the UAE, and banks are keen to dispel the myth that skipping the country frees expats of their debt obligations.

Sarah, who left the UAE last year, had to return to the UK before her bank would agree to reschedule her credit card repayments. "I had to leave the country because of personal reasons but I still had a AED40,000 ($10,889) credit card balance.

I didn't want to leave the country without paying it, but the bank left me no option. ‘We need it all at once,' the rep said, and refused to compromise over payments.

"Only once I returned to the UK would they consider a payment scheme, and even then it was a struggle."

McClure believes it may be too late for some banks to recoup their loans before expats flee the country. "You can guarantee that, because there is an 80/20 imbalance in population [in favour of expats], all of these phone calls which have come in, at least half of those people will run. It's going to get an awful lot worse," he warns.

Banks, for their part, are working to provide an alternative to residents considering skipping the country. In a statement to Arabian Business, Lloyds TSB Middle East advises any customers who are unable to make repayments to contact the bank as soon as possible.

"If, due to the current climate, any of our customers were to have problems with making repayments, we would invite them to meet with one of our financial experts to discuss the options available to them," says Richard Musty, head of consumer banking. HSBC Middle East tells Arabian Business it has a specialised department to deal with rescheduled payments, and will assess personal finances on a case-by-case basis.

"We have a wide range of solutions to help people and the emphasis is to find a solution which best suits each customer and to implement that as soon as possible to avoid additional fees or distress," says George Lennox, head of credit at Personal Financial Services for HSBC Middle East.

But banks are keen to dispel the myth that leaving the country frees expats of their debt obligations. Lennox warns that absconders will have their debts passed on to an international loan agency.

"These cases are passed on to our robust collections unit supplemented by legal action for chronic and willful defaulters. The bank also uses international agencies to trace skip customers.

Both Barclays and Emirates NBD, the UAE's biggest bank by assets, declined to comment.

Some legal experts have suggested that the number of people facing individual bankruptcy will rise as redundancies increase and people sink further into debt.

Under UAE law, non-trader individuals can be subject to ‘hijar', which translates to mean ‘a restriction on the debtor'. These court-imposed restrictions can prohibit individuals from entering into any other debts, engaging in any type of business activity and may appoint an outside party to deal with the existing debt.

Restrictions may also be placed on the debtor's movements, says Jim Delkousis, a partner at DLA Piper Middle East.

"Given the current economic climate, it will come as no surprise that there will be more corporate and individual bankruptcies," says Delkousis.

One consequence is that there will be more occasion to see how bankruptcy legislation will be applied in practice, he adds

"Because the UAE is still a fairly new country and the economic climate has been so buoyant over the last ten years, there are still a few things playing catch-up, and the practice of individual and corporate bankruptcy law is probably one of them."

Other legal experts, however, suggest the disadvantages of hijar far outweigh the advantages for both banks and residents.

"Yes individuals can [declare themselves bankrupt]... but why would an individual want to do it?" asks Stephen Ballentine, a senior legal consultant for Galadari & Associates. "If it's just your mortgage and your creditor would be the lender, then what is the point?

"You tell your lender you can't afford to pay your mortgage, [and ask whether] you can restructure. If they don't, they'll have to reprocess the house and then try and sell it in a market where no one is buying."

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

So whats the answer?
Posted by Phil, Manchester, UK on Thursday 12 March 2009 at 21:23 UAE time

The comments made by James are 100% correct. The most ludicrous statement made by the banks too is always 'you must pay back all immediately.' Sorry but if you had that sort of money then why would you need the loan / car finance / credit card in the first place?
I too am in a similar situation albeit thankfully to a far lesser degree whereby was due to leave Dubai as I had a new job to go to so I cancelled my visa legitimately and therefore left legally in that sense but also had to leave behind some small debt. Now I think I would like to return to the UAE and work there once more but there is no way am I just going to arrive at the airport and be arrested like a criminal. Yes some might say 'well you are a criminal as you have debt' - no, I am a victim of circumstance and outdated law. My intention was always to settle my debts but when one is faced with an impossible situation whereby I have a new job to go to and a cancelled residency visa and having resigned from my UAE job what is one supposed to do - hang around selling cardboard boxes to make money and live under Garhoud bridge? I don't think so.
Part of the problem is that many of the banks in the UAE use their international titles but only in a franchise sense - for example HSBC UAE is absolutely nothing to do with HSBC Europe - a fact they all too openly admit, sometimes to their own peril - so, safe in the knowledge that there is little or no repercussion is it little wonder that so many people choose to leave behind their inconvenient debt? I, like James, am all too aware of the UAE's banks & police tactics when dealing with straightforward cases and I would certainly like to know what is the best way forward to seeking resolution and a cleared name in this regard without being shown the 'alternative entrance to Dubai' at the airport. Who do you speak to - The bank? The police? Both?
I don't believe anyone in their right mind would walk straight into a situation like that and furthermore, if the banks actually started acting like their worldwide counterparts whereby credit checks were made and credit limits were not blown way out of proportion then perhaps people would not be leaving unpaid debt behind or, in some cases, purposefully absconding with huge amounts of money, never to return.

There is more of a story here...
Posted by James Moore, Paris, France on Sunday 22 February 2009 at 14:33 UAE time


I have lived in Dubai for 12 years. For me it is home, and my closest and dearest friends are all UAE Nationals. I had a good stable job (as I thought) and was doing well. That was until it was discovered that the business owner was seriously corrupt and a sham, and so the business collapsed. I was by the time it all happened three months salary and my performance bonus down - all in all $150k. I had just paid my rent, and had taken borrowing from one of the western banks in Dubai to do so - AED500k. I had a car loan and credit card - all of which were perfectly manageable day to day as long as the salary kept coming. I contacted my bank and explained the situation, expecting that they would be at least partially sympathetic - how wrong can a guy be. They told me that they now needed 100% of the money back because I didnt have a job and so didnt qualify for the borrowing, or they would bank my cheques anyway. My credit card bank were less obviously hostile and said that it would all be ok and that they would help if needed. The next day I tried to use my card and it was retained - they had stopped it. The next day my security cheque was banked and it bounced. I was forced to flea the country quickly before a Police Case could be filed, and this was directly at the banks hands. I had no intention of ever leaving the Emirate let alone any debt, but I had no choice and the banks would not sensibly talk about the options. All they said was 'you'll go to jail if your cheque bounces'. Frankly, I was terrified and simply had no other option. I went back to France and continued to talk to the banks, who now informed me that there was a case, kindly sending me the number, and that I must pay it all in order for it to be cancelled. So, what to do? The banks won't talk; the UAE embassy won't help; the Dubai Police won't talk - they simply say 'come back and we'll sort it out but you will be arrested at the airport' which is not that appealing. Now I am seriously in debt in Dubai whereas before it would have been manageable. The system has to change if the probem is to be avoided by the Emirates. Mr McClure (quoted in the article) has to accept that people dont just skip the country to dump debt, although I'm sure there are a lot of those - sometimes people genuinely dont have any choice. The whole notion of security cheques is just not right. The practice of giving a cheque to a bank when youre borrowing money, that you and they know can never be met for payment is surely futile? Unless the UAE sorts this out and takes some brake steps, I can see the problem worsening severely.

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM