UAE residents bounce $9.6bn of cheques to Aug

Gulf state sees drop in number and value of refused cheques, says central bank
UAE residents bounce $9.6bn of cheques to Aug
By Claire Ferris-Lay
Thu 13 Oct 2011 08:06 AM

Account holders in the UAE bounced AED35.2bn ($9.6bn) worth
of cheques in the first eight months of the year, reflecting a four percent drop
in total liability.  

About 1
million cheques were declined in the year to August, central bank data showed.

This
marks a decline of 11 percent on the 1.2 million cheques that bounced in the
year-earlier period, with a value of AED36.8bn.

The
total number of bounced cheques is a gross figure and includes cheques that
have been resubmitted, said Saif Hadef Al Shamsi, assistant governor, Monetary
Policy and Financial Stability Affairs.

“This is
not an absolute number. The number is correct but there are some cheques which
have been resubmitted again. Theoretically it should be less because a large
number of these cheques have been represented again,” he told Arabian Business.

Cheques are
used in the UAE to underwrite credit cards, loans and guarantee future payments.
The number of declined cheques soared during the financial crisis in late-2008,
which saw thousands of expatriates lose their jobs and struggle to pay their
debts.

It was
estimated as many as one in four cheques bounced at the peak of the downturn, a
criminal offence under UAE law.

The reduction
in defaults in the year-to-date reflects the UAE’s improving economic
situation, said Philippe Dauba-Pantanacce, senior economist at Standard
Chartered in Dubai.

“The UAE has been through a marked
improvement of its economic environment in 2011 thanks to the amelioration of
global trade, tourism flows but also due to the safe haven effect that the
country benefited from in the midst of regional unrests,” he said.

“In this context the fortune of the UAE
residents has most likely improved as well, and the decrease in the number and
value of bounced cheques is a testimony to that.”

The UAE economy will likely see growth of between 3 to 3.5
percent this year, Minister of Economy Sultan bin Saeed Al Mansouri said in
September.

The UAE
Central Bank said in August that residents who issue four bounced cheques within
one year will have their account suspended for 12 months and will not be allowed
to open new accounts.

Customers
that issue four cheques that cannot be honoured will also be placed on a
blacklist, which will then be circulated around the rest of the country’s
lenders, the bank said.  

The new rule is part of ongoing measures by the central bank
to bolster the UAE’s banking system and rein in the excessive lending practices
seen during its boom years.

In May, the central bank rolled out new rules on consumer
lending that capped personal loans at 20 times a borrower’s monthly salary and
said repayment periods should not exceed 48 months.

Monthly installments for all loans, including personal, car,
housing loans and credit cards, must not exceed 50 percent of a customer’s
gross salary and any regular income, the central bank said.

In June, shops in the Gulf state were barred from charging
consumers additional fees on purchases made with credit cards as commission.

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