By Sarah Townsend
Bankrupt expats should declare themselves as such in their home country, says Abdul Aziz Al Ghurair
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.
I would like to see MoUs between al Etihad Credit Bureau and credit bureaus in the home countries of UAE residents, regardless of solvency. My credit record is impeccable but I will not see the benefit of that if I return to my home country, as I've lived overseas for +25 years. Likewise, those who come here to escape debt problems should receive a higher risk profile, yet the lack of information sharing is detrimental to lenders, increasing their exposure to NPLs, which we all ultimately pay for.
The problem of "personal indebtedness" is of the UAE Banks' own making. Loans & credit cards were handed out to totally undeserving people. Agencies to whom these services were outsourced by banks aggressively pushed the products onto unwary expats who fell easy prey. The Banks knew very well that they would make tons of money off fines on delayed payments, "Fines ON Fines" & usurious interest on outstanding amounts. Will Mr. Al Ghurair seriously consider undertaking a study on all the people who are in jail because of credit card or loan payment default? I would not be surprised if the results show that a majority of these people had no intention to defraud the creditor bank but got caught up in debts that spiralled out of control mainly because of the huge and totally unfair fines and charges the banks imposed. Will UAE banks accept their moral responsibility for this mess, let go their claims on many small debtors, release them from Jail & change the lives of their families????
You are very right my friend, there are sharks out there....
I completely concour with (Pankaj Shah) with the personal indebtedness on loans and credit cards. There was this agents form FG Banks who used to call me on a daily basis urging me to take a loan on credit card. I in some point had to get the loan and treat my dad for his high blood pressure illness. What happened then later after, the real estate market started a slow down ie in September of last year 2015. I was lucky to keep my job but with half of my salary reduced. On February this year I got arrested coming back from my country where I was visiting my ailing father. Till now, my passport is with the police. I had left an outstanding amount of about 9,000dhs with FG Bank while I had paid them about 24,000dhs from 33,000dhs. They are now asking me to pay about 59,000dhs. Now you do the math and tell me, IF IT WERE YOU, WOULD YOU PAY???
Only if I wanted my passport back.
Returning was probably not a good idea.
Don't blame any bank because all banks diligently follow the Debt Burden Ratio (DBR) - the maximum percentage of an individual's income that goes towards debt payment that should be no more than 50 per cent, the onus is on some irresponsible people who, instead of being more concerned about job security, are increasingly putting themselves at the risk of long-term debt by adopting a lavish lifestyle through loans and credit cards or take out excessive loans for whatever reasons that they cannot afford. Let it be crystal clear that no bank ever forces anyone to take a loan or a credit card and if anyone borrows from anyone or from a bank, he must settle the debt.
Nowadays many organisations are grappling with unprecedented fraud and scam risks. Corporate fraud and scam result in huge financial loss, impairs brand reputation and goodwill, alienates customers and suppliers, and diminishes market confidence and trust. In the long run, fraud has the potential to run businesses into the ground and as a hardworking businessman, I really hope and pray that the introduction of bankruptcy legislation for businesses does not encourage corporate fraudsters and swindlers to thrive and prosper.
Many people need a loan to pay their rent upfront, given that rent can easily be 20-30% of income it is impossible for them to avoid repeating this cycle every year.
I have seen quite a few people lose their jobs 3-4 months after getting indebted like this.
A model with such upfront fixed costs is inherently unstable.
Agree with Telcoguy and Pankaj Shah. It is the system at fault. Criminals are used to intimidate individuals by bank. This should stop. Jailing a person is depriving him on try make money to pay back. Bankruptcy laws should be there to protect an individual who are most of the times victim of the situation (job loss, financial melt down like 2008). Loans are a business deal for banks to make money, no favours here. Some times they must put up with losses as well that is quite natural.
Referring to all what was well discussed above, the question here is how would Mr Al Ghurair legalise this dual bankruptcy on the ones home country as well? I am sure many MPs and most newspapers in my country would not consider to discuss or even negotiate double jeopardy laws with UAE. How will it become like if one was issued a traffic fine here and by double jeopardy the same fine will be stripped off his family back home, is that legal or is it fair?
I don't know......