UAE paves way to clear more Emiratis' personal debts

The UAE federal government has signed up four more banks up to a debt settlement scheme for Emirati personal loan defaulters in the Gulf state's latest move to decriminalise bouncing security cheques for citizens.

Sharjah Islamic Bank, Noor Islamic Bank, HSBC and Arab Bank for Investment and Foreign Trade all signed up to the Debt Settlement Fund for UAE nationals, taking the total number of lenders to 17, state news said.

“The agreements endorse mechanisms for settling defaulted loans owed by nationals against whom courts of law have passed judgments or cases are pending,” a statement on WAM read.

Authorities earlier in the week freed around 290 Emiratis who were jailed for bouncing security cheques, considered a crime in the UAE. They have been presented with certificates to protect them from any future prosecution while citizens in similar situations should report to the Public Prosecution to receive their certificates, state news agency said.

UAE President Sheikh Khalifa Bin Zayed Al Nahyan in May allocated around AED5m to settle defaulted loans for each indebted citizen. In August, the Central Bank ordered lenders to extend maturities on personal loans held by Emiratis by more than four years.

Cheques are used in the UAE to underwrite credit cards, loans and guarantee future payments.

The global economic downturn exposed the UAE’s borrowing excesses, which were fuelled by easy credit during the country’s five-year real estate boom. When Dubai’s property bubble burst, thousands of expats fled the emirate leaving unpaid credit cards, mortgages and personal loans outstanding.

At the height of the country’s debt crisis in 2009, UAE lenders said they were seeing up to 2,500 customers leave the country every month without settling their debts.

The UAE central bank last year rolled out a set of rules aimed at limiting loans to individuals and capping banking fees in the country. The central bank has limited personal loans to 20 times the salary or the monthly income of a borrower with a repayment period set at 48 months.

More than 1.5m cheques issued for payments totaling AED55.3bn (US$15.05bn) bounced last year, according to data from the Central Bank.