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Mon 16 Nov 2015 07:50 PM

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SME owners flee UAE with unpaid debts exceeding $1bn in 2015

Senior banking official says banks in the UAE are working together to try to stem the number of 'skips'

SME owners flee UAE with unpaid debts exceeding $1bn in 2015
UAE Banks Federation chairman Abdul Aziz al-Ghurair.

Banks in the UAE are working together to try to stem the number of small business owners fleeing the country with unpaid debt, a trend that has already reached around AED5 billion ($1.4 billion) this year, a senior banking official said.

Small and medium-sized enterprises (SMEs) have come under pressure in recent months amid a gradual drying up of liquidity in the banking system due to the weak oil price and slowing economic growth.

As a result, some business people have chosen to "skip" the country, leaving behind unpaid debt, a situation that bankers say has grown significantly from last year, although they did not provide precise figures. In a country where under existing legislation, a bounced cheque risks landing the issuer in jail, many of those absconding fear the consequences if they stay.

"We want to take coordinated action on risk management," UAE Banks Federation chairman Abdul Aziz Al Ghurair told reporters on the sidelines of a banking conference on Monday. "The idea is to allow the customer to pay for his debt and stay in town if they have a good intention. If they don't have a good intention, then it is no good (the bank) spending time (with them), it doesn't help."

In recent years, the UAE government has been keen to encourage banks to lend to SMEs, which account for around 60 percent of the country's gross domestic product. But third-quarter earnings from some of the smaller lenders pointed to problems in these loans.

UAE central bank governor Mubarak Rashid Al Mansouri, at the same conference earlier on Monday, said the government was keen to press ahead with a new bankruptcy law to help support SMEs.

Current bankruptcy rules are considered by lawyers to be outdated and largely untested, with few struggling companies using the legislation.

The cabinet approved a draft law in July but it still needs the support of the Federal National Council, the country's legislative body, and the president.

Al-Mansouri also said the UAE would set up a credit guarantee scheme to help reduce the risk of default for potential lenders. He didn't elaborate on the specific details of the plan.

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Jebelalibaba 3 years ago

Another SME company absconded from UAE leaving a trail of debt , the issue is not just with the banks what about companies who give credit, and with such owners fleeing its having a domino effect in all industries.

gvk 3 years ago

I feel with continuous Rent increase since last 3-4years along with increase in other business operating expenses is effecting SME ,used to thin margin with high volumes. Purchasing power of residents is reduced,traditional re-export markets volumes are effected due to higher prices and various other factors.Increase in Tourist numbers is a good sign but they too feel prices are expensive which does not support expected volumes.

Devendra Joshi 3 years ago

Most of the SMEs which are set up by small start ups/players who are relatively new to that part of business could suffer losses and have to shut down. Preferably they should be aware of the different costs involved in the smooth functioning of their small/medium/large scale industry. I have previously worked in UAE and I am proud to say that all Government offices/officers and their Heads and all people in the offices, work in a friendly/humane manner which is very positive and encouraging to promote business and trade in UAE. However I strongly feel that Banks/financial institutions have to conduct a systematic study for the loan requirements of the SME or any Industry, because there has to be a clear risk assessment study and ROI factors to consider for exponential growth of the Industries/businesses as well as revenue growth for the Banking Industry. It should be planned on a mutually beneficial grounds with risk factor consideration limits.

John 3 years ago

The UAE market will be affected by regional issues, people will limit their travels to the mid-east which will effect businesses, however, what kept Dubai afloat after the crash of 2008 was the local market of GCC tourism. They will remain in the mid-east this holiday season which will be a boost to the Dubai market. What is a positive note is that real estate prices are set to go down in the UAE which are still being elevated to unacceptable levels. Banks in the UAE need to be more responsible with their lending and input protection measures to ensure payment on these SME loans. Did anyone learn anything in 2008?

Mark 3 years ago

Rents in Dubai are ridiculous and so are the costs of doing business or living in Dubai which is why the cost of running a business has become very difficult. If rent is expensive, living expenses are high then how can businesses remain profitable? If they are unprofitable people will leave.

jacob 2 years ago

It's not just the banks that need to protect their funds but the businessmen, too, need to protect their professional reputation, they really need to be protected and encouraged to do business, fleeing is only an escape route, but in the long term, the banks have to encourage the businessmen by not harassing the establishments and carefully analyse the focus of borrowing.