Local banks will continue to help struggling small businesses restructure debt even after President Sheikh Khalifa ratified a bankruptcy law, according to a spokesman at the UAE Banks Federation.
The federation said in September that an initiative among local banks to bail out small and medium-sized enterprises (SMEs) has helped to restructure some Dh7 billion of debt owed by more than 1,700 companies this year.
At the same time the spokesman hailed the ratification of the law, saying that it will help struggling business owners to restructure debt, reducing the temptation to skip town, as well as giving the economy a boost. Banks are also upbeat, as it will mean less money put aside to cover bad debt.
“The approval of the federal bankruptcy law will catalyse a stronger and more favourable investment climate in the UAE that allows for increased financing for SMEs,” said Suvo Sarkar, the head of retail banking at Emirates NBD, Dubai’s biggest bank by assets.
“From our perspective, the law will help reduce the burden of bad debt for lenders, leading to improved asset quality in the medium to long term.”
The IMF said last week that the law would give a much-needed shot in the arm to non-oil GDP growth in the country.
“This has been on the cards for a long time,” said Masood Ahmed, the regional head of the IMF. “The fact that they’ve done this is a plus, in my mind.”
The lack of insolvency regulations during Dubai’s credit crisis between 2009 and 2010 led to a number of businessmen being detained for unpaid debts, with many fleeing the country to avoid arrest.
That scenario has been replaying itself on a much smaller scale over the past two years as small businesses face difficulty in repaying debt amid the collapse of oil prices and the subsequent fall in government spending.
Abdul Aziz Al Ghurair, the chief executive of Mashreq and the head of the UAE Banks Federation, said in November that some small business owners had skipped town, leaving about Dh5bn of unsettled loans.
As well as protecting financially strapped businessmen from criminal prosecution – except in cases of fraud – the law is also expected to encourage more people to try out their entrepreneurial skills.
mkassem@thenational.ae
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