By Ed Attwood
CEO of Commercial Bank International says lenders working together to help restructure debts of troubled small businesses
Some small business owners that had fled the UAE fearing imprisonment due to unpaid debt have started to return to the country following a concerted effort by lenders, a top banker has said.
Mark Robinson, the chief executive of Commercial Bank International (CBI), said he was aware of “three or four cases’ in which local banks had worked together to restructure the debts of smaller businesses in financial difficulty, allowing executives to return to the UAE.
“In some cases [when a business defaults], there’s not much the banks can do, and in other cases the banks have obviously tried very hard to work together to address those cases, particularly when you can see that this is not a case of a company that was doing anything wrong – they’ve just got impacted by the overall market,” Robinson told Arabian Business.
“The good news is, in three or four of those cases, we’ve actually had people that have left the country, and who were therefore officially classified as skip cases. But then the banks got together and worked with them while they were offshore to come up with an agreeable restructuring, and obviously said ‘please we’d like you to come back now – we won’t do anything precipitous’.
“And we’ve now seen three or four cases that I’m familiar with, where people left three, four, six months ago, and have now come back and are running their company with the full support of the banks,” Robinson added.
Small and medium-sized businesses in the UAE have come under pressure over the course of the last year as low oil prices have resulted in slowing economic growth, a slowdown in payments from suppliers and a tightening up on lending by banks.
For those struggling to make payments in a nation where bouncing a cheque risks landing the issuer in jail, many choose to ‘skip’ the country instead.
Estimates put the total figure for deserted debts in the year to November 2015 at around $1.36 billion.
The country's banking federation agreed in March to a voluntary system whereby indebted businesses could work with their lenders to put new payment schedules in place.
In May, the chairman of the federation, Abdul Aziz Al Ghurair, said that the issue had been “contained”.
Robinson said that between 5 and 10 percent of CBI’s loan book was dedicated to business banking, typically to small companies with revenues between AED20 million and AED100 million ($5.4 million to $27.2 million).
The chief executive also said that since a revamping of its business banking lending unit, CBI had not had a single credit loss among new clients since January 2015, although there had been “one or two” ‘skip’ cases from debtors brought in under the bank’s old lending criteria.
“Skip cases really occurred in the second half of last year, and of course that will always bring up another conversation about the economics that cause these companies to get into trouble,” Robinson said.
“I think bankruptcy legislation would do a couple of things. Firstly it would stay all creditors equally, so even if you were secured or unsecured…everybody would know that as of this time and date, everybody is stayed and the debtor gets a chance to show what he’s got in an organised court forum and then everybody can get a chance to see how they may or may not choose to support them.
“What you don’t have is one person pulling the rug out and everyone else scrambling.
“And the second thing it does is implicitly decriminalise defaulting – you’ve defaulted and you have an opportunity to work with the banks, either to work with creditors on resuscitating the company or put into effect an orderly wind-down with the full oversight of the court.”For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Hope this continues to be the reality, as defaulters/ skip cases have always had the urge to pay the debts but the notion and belief of experiencing immense pressure from banks and handling legal framework has always been a challenge and thereby resulting in abscondence. Nevertheless, when such people start returning there is always the triggering of "following the herd" and to stop the pursuit of default. This is great news and it would have a positive outlook on the economy as a whole and bring back the lost treasures within the community.
A good step in the right direction. But a lot more needs to be done. The first being the decriminalisation of bounced cheques of small denominations, and for default of car loans, credit card payments etc. There are just too many people rotting in jails, when they should actively be working & doing their best to pay the banks back. Hold their passports if you must, but putting them out of work and in jails is counter productive - the banks will not get their money as the man is not earning, his family suffers deprivation of their livelihood and the defaulter is an unnecessary burden on the states resources.
I am not sure how true this is, but I believe that many people who have completed their jail sentences for default are not being released as the banks are still insisting on full repayment. Surely the court ordered jail sentence should be punishment enough. Holding them indefinitely with no hope of earning to pay the bank back seems cruel and unjust. Anyone out there listening?
What about the people who defaulted and have bounced checks?!!
Sorry to say, rather than giving some workable solution to defaulters, banks are threatening them through phone calls, emails and by visiting their agents to the customer. Banks should understand well that these people are not criminals.