Issuing a bounced cheque should be decriminalised and banks should stop demanding security cheques for personal loans, the longest serving bank CEO in the UAE has told Arabian Business.
In an exclusive interview shortly after stepping down as boss of National Bank of Abu Dhabi (NBAD), Michael Tomalin revealed his opinions on numerous banking issues in the UAE.
He said using cheques as a form of payment or security for a loan was archaic and he supported a long-running campaign to have bounced cheques decriminalised.
“Yes I do. The cheque has been used as a way to ensure payment and I think increasingly we need to move away from that and think of a better way of lending in the personal sector,” Tomalin, who served as CEO for 14 years and is now an executive board member, says in an interview to be published in full in the Arabian Business magazine on Sunday.
“It happens in other developed markets, [and] the UAE is becoming a developed market in terms of financial services - the banks are every bit as sophisticated as you’ll find in the West.
“The only disadvantage I can see is that decriminalising bounced cheques could push up the price of credit.”
Tomalin said there needed to be a distinction between a cheque used for security and one used for payment.
Cheques should no longer be used as a form of security even if it would push up the cost of credit, while introducing a bankruptcy law would allow bounced cheques used for payment to be decriminalised.
UAE residents have been jailed in the past for issuing a cheque that later bounced.
“What banks have done is take security cheques, in other words, if you take out a loan banks have asked people to write up 24 cheques. That is not a good way to lend money,” he said.
“My view is that we should move away from the concept of security cheques all together, that should not be part of it. It should be unsecured lending. But it would probably be more expensive.
“As far as payment cheques are concerned; if the payment cheque bounces there should be a civil redress through the court, in other words you need a bankruptcy law so that if you can’t afford to pay you would be made bankrupt, which is what happens in other countries.
“I’m saying it’s a civil offence not a criminal offence.”
In the full interview, Tomalin also reveals his opinion on the new mortgage cap rules and UAE credit bureau, as well as who he blames for the UAE’s personal credit crisis.
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