DUBAI: Banks in the United Arab Emirates will suspend legal action against SMEs struggling to repay debt for up to three months to prevent a surge in defaults that may jeopardise the economy.
The initiative, which involves businesses working with lenders to restructure their loans, is intended to give breathing space to SMEs, which contribute around 60 per cent of UAE’s gross domestic product.
Banks have been hit by a spate of defaults, especially from traders of foodstuffs and oil, as a result of weakness in prices of commodities, as well as a gradual easing of bank liquidity.
“What we have put on the table is a mini insolvency law,” said Abdul Aziz al-Ghurair chairman of the UAE Banks Federation, the industry body representing 49 banks. “We will give the customer time and space as long as they’re genuine.” The federation was lobbying the government to “expedite” the new insolvency law, said al-Ghurair, also chief executive of Dubai-based lender Mashreq.
Fearing jail for unpaid debt, many cash-strapped expatriates opted to depart, making it hard for banks to recover payment.
The debts left behind by those so-called “skips” had reached around 5 billion dirhams ($1.4 billion), al-Ghurair estimated in November. On Monday, he said he was unsure what the latest figure was.
The plan will be open to companies that have borrowed 50 million dirhams or more from a number of banks and were showing signs of financial stress, typically leading to an inability to make repayments.
Courtesy : Dawn News