UAE banks bail out 1,700 SMEs and corporations with Dh7 billion in loans restructured

Thousands of companies are already bailed out ahead of the bankruptcy law's finalisation.

Abdul Aziz Al Ghurair, the chairman of the UAE Banks Federation, said that the initiative to rescue SMEs involved all of the country’s banks. Pawan Singh / The National

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, the UAE Banks Federation (UBF) said.

The federation also said the bankruptcy law approved this month by the country’s Cabinet is another measure that will help struggling business owners restructure debt, reducing the temptation to skip town.

Abdul Aziz Al Ghurair, the UBF chairman and chief executive of Dubai-based Mashreq, said that the initiative to rescue SMEs, dubbed “Modus Operandi,” involved all banks. The executive’s comments came after a meeting of the heads of the 49 banks that are members of the federation. SMEs make up 90 per cent of non-government GDP, he said.

“Modus Operandi” began at the end of March, according to a UBF spokesman.

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.

Some small business owners have fled over the past two years, leaving behind debt. Mr Al Ghurair said in November that small business owners who had skipped town had left about Dh5bn of unsettled loans.

In May, however, Mr Al Ghurair said the potential fallout from rising levels of SME bad debt had been contained as banks work with business owners to restructure debt.

“Everyone agrees that restructuring, giving customers an opportunity to perhaps have more time to reduce instalments over a longer period of time is preferable for everyone resulting in less litigation and costs,” said David Hunt, the chief executive of Gulf Finance, an SME financier based in Dubai. “It’s a positive thing without a doubt.”

Among other things, the bankruptcy law will put a moratorium on sending people to jail for bounced cheques until a restructuring plan for business owners has been agreed with creditors.

“We commend and welcome the legislation of the bankruptcy law, which the government has recognised as a pre-requisite to the country’s future economic development, and as an essential tool to maintain the well-being of the business and environment economy,” said Mr Al Ghurair.

Aside from the holes in their balance sheets created by defaulters, lenders as well as business owners have also been reeling from a general economic slowdown following the crash in the price of oil.

For years, observers have urged the government to put in place legislation to make it easier for SMEs, the lifeblood of the economy, to thrive.

However, the bankruptcy law may need to be debated by the Federal National Council first however. Members of the FNC are hoping to curtail their summer break time to take up a debate on a proposed bankruptcy law.

The council is not scheduled to meet until the third week of October, but the law, which will give protection to companies, their directors and employees in cases of insolvency, could be passed before then if it receives a presidential decree.

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