Calls grow for data on bad cheques in the UAE

Bounced cheques: Banks and other financial services firms call for greater disclosure of data on the Dh55.3bn of failed cheques last year to understand the ripple effects on the local economy.

Ali Al Nuaimi, the head of the FNC's finance committee, called on the Central Bank to review the high levels of bounced cheques. Fatima Al Marzooqi / The National

Financial industry leaders say the Central Bank should provide more details about cheques that fail to clear.

They say there should be greater disclosure over the reasons behind failed cheques and other details, including the nationality of those who write them.

Last week, The National reported that 1.5 million cheques worth Dh55.3 billion (US$15.05bn) last year were rejected for payment. The figure represents 5.5 per cent of all cheques used.

The statistic prompted Ali Al Nuaimi, the head of the Federal National Council's finance committee, to call on the Central Bank to review the high levels of bounced cheques, while Noor Islamic Bank's chief executive called for an end to the use of cheques altogether in favour of an alternative.

In addition, the Central Bank should also study the issue of bounced cheques and publish its findings, so as to provide a better understanding of what types of cheques bounce and for what reason, said Muneef Tarmoom, the managing partner of Abu Dhabi Equity Partners, a company that sells financial services products to the banking industry.

"The Central Bank ought to publish, on a quarterly or monthly basis, data of failed cheques and their status," he said.

Data should include the reason for the failure and a profile of the customers, including their age, nationality and whether a company or a consumer issued the cheque, he added. A better understanding of how many cheques remain outstanding after bouncing and the number of outstanding legal actions taken to recover funds would help to quantify the "impact" of cheque failures, Mr Tarmoom added.

The level of bounced cheques in the UAE compares poorly with at least one jurisdiction. In the United Kingdom, for example, about 0.5 per cent of all cheques issued are returned as invalid, according to the Cheque and Credit Clearing Company, an industry body that manages the country's cheque-clearing system.

Some 682 million cheques were used in the UK last year.

The UK figures are compiled by the Payments Council, a group of financial organisations, to "monitor and collate authoritative figures that define market trends and influence the strategy for payments in the UK to ensure they meet the current and future needs of the individuals and businesses that use them", said a spokesman for the group. The UAE has been steadily producing more economic data, but still lags behind other nations, said Liz Martins, a senior economist at HSBC Middle East.

"The breadth of data that there is is still relatively poor compared to the rest of the world," she said. Increasing the amount of data available on cheques would mean "fewer nasty surprises if banks are having to provision for bad cheques", she added. The Central Bank stopped publishing monthly data on the number of cheques both used and returned this year. The last release was in January.

It continues to publish data on successfully cleared cheques, however. "It would be good to understand the rationale for stopping circulation of useful information," said Mr Tarmoom.