UAE banks plan to let SMEs work off their debts

Abdul Aziz Al Ghurair, the UAE Banking Federation chairman, said lenders and distressed SMEs would together in restructuring repayments. Pawan Singh / The National

Bank chiefs have launched a loan-restructuring scheme for indebted businesses where lenders work together to help firms to reduce their debt burden.

The UAE Banking Federation (UBF) revealed the plan yesterday aimed at struggling small and medium-sized enterprises (SMEs).

The move comes as progress on the country’s long-awaited insolvency law, which contains a similar framework for the restructuring of corporate debts, has stalled.

Under the terms of the UBF plan, which has been in development since late last year, an SME with multiple loans that is experiencing difficulties can opt to enter the scheme, whereby lenders "coordinate their position and work to assist the company in restructuring its future repayments".

The UBF did not say which SMEs would be eligible for the initiative, or when it would come into effect.

“Lending to SMEs is a high priority for us and we have agreed now on a plan which will definitely be a win-win for all involved,” said the UBF’s chairman Abdul Aziz Al Ghurair.

“This again reflects banks’ commitment to apply a coordinated approach, to alleviate SME-funding difficulties and continue banks’ support to the SME sector being vital to the national economy,” said Mr Al Al Ghurair, who serves as the chief executive of Mashreq.

Small businesses have been hit hard by an economic slowdown triggered by a sharp decline in the price of oil and made worse for some exporting companies by a strong US dollar, to which the UAE dirham is pegged.

The UBF warned in November that a number of small business owners were fleeing the country, leaving unsettled debts totalling about Dh5 ­billion. “It’s a really serious situation for SMEs right now, and they could have a serious impact on the wider economy,” said a senior executive at a local bank, who asked not to be named. The sector consists of about 300,000 companies, accounting for 86 per cent of the UAE’s private sector workforce, according to the Ministry of Economy.

The investment bank EFG-Hermes last month warned that the fallout sparked by rising SME bad debts might spread to indi­vidual banks, with provisioning levels rising for the first time since 2013.

“We urge caution in 2016, particularly as we expect a second wave of provisioning from the retail segment following a surge in delinquencies,” said Shabbir Malik, an analyst at EFG-Hermes investment bank in a research note.

Dubai’s largest bank, Emirates NBD, this week reaffirmed its commitment to UAE-based SMEs, but admitted that such companies faced a difficult 2016.

"They are the businesses that have the least power to pull in cash," the bank's chief executive Shayne Nelson told The National this week.

“As liquidity is tightening in this market, they feel it more than anyone else.”

The move by the UBF to introduce the debt-repayment mechanism comes in the absence of a modern insolvency law, allowing companies to be put into administration while their finances are reorganised

A new insolvency law, based on French insolvency prac­tices, was given the green light by the Cabinet in July, but has yet to be referred to the Federal National Council for approval, according to a fed­eral Government source.

Crucially, the new law contains provisions regarding bounced cheques, allowing companies to escape criminal charges for bouncing cheques while undergoing an administration process.

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