The total liability from bounced cheques in the UAE dropped by a quarter in the first four months of the year in a sign that the bad debt crisis may be easing. But despite the decline to Dh18.6 billion (US$5.03bn) in the first four months of the year from Dh24.8bn in the same period last year, the actual number of dishonoured cheques increased, Central Bank data showed. The number of returned cheques rose by 8 per cent from 544,196 in the first four months of last year to 588,570 in the same period this year.
"Consumers hold the key to any economic recovery," said Tudor Allin-Khan, the chief economist at HC Brokerage. "If there's a reduction in defaults and an improvement in income and spending power, that indicates the real economy is in better health." Late payments and defaults on debt shot up during the global financial crisis as a wave of job losses left many unable to pay personal loans, mortgages and housing rent.
A pick-up in economic activity, improved job prospects and a decline in rents have helped to bolster consumer confidence, contributing to a gradual fall in the amount of defaults, say economists. Cayan, a Dubai property developer, has seen a reduction in the amount of tenants defaulting on rent instalments. "The average amount of bounced cheques we have is no more than 10 per cent," said Kareem Derbas, a partner and chief executive of Cayan. "It has decreased. The main reason for that is because the rental has come down and people are now spreading the money they pay over a year."
With rent payments accounting for a significant portion of cheques written, the move towards tenants paying for their rent in quarterly or monthly instalments rather than in one-off yearly sums could partly explain the anomaly of the declining monetary value of the defaults, set against the rise in numbers of returned cheques. "Businesses and people are still living beyond their means, which is leading to cheques being bounced," said one economist based in Dubai.