Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation, said under the restructuring guidelines outlined by the UAE Banks Federation, banks had managed to work out Dh4.5 billion SME loans to protect the banking system.
Dubai - Dh7b of problem loans to companies being renegotiated by banks
Bad loan cases are "dramatically" slowing down in the UAE while about Dh7 billion of problem loans to companies are being renegotiated by banks.
Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation, said under the restructuring guidelines outlined by the UBF, banks had managed to work out Dh4.5 billion SME loans to protect the banking system.
"We have worked out Dh2.5 billion of loans to large corporates to encourage banks not to take unilateral action, otherwise the customer will skip." In March 2016, the UBF unveiled a plan - as a prelude to the landmark bankruptcy law which is going to be implemented in the UAE by the first quarter 2017 - which allows for the temporary suspension and restructuring of debt payments for businesses struggling with loan repayments amid an economic slowdown.
At a media briefing, Al Ghurair, who is also the chief executive officer of Mashreqbank, said the banking sector had slowed down this year and profit would come down anywhere from 10 to 20 per cent.
For 2017, profit of the sector will probably be flat, "plus or minus five per cent" in line with the general slowdown across all economic sectors in the UAE, he said.
He said provisions by banks would peak this year as the industry continues to work with businesses to renegotiate terms instead of calling defaults.
Al Ghurair said the problem with the UAE businesses is that they have been spoilt as they got used to high margins and high returns that are no more sustainable." The upcoming bankruptcy law will provide greater certainty to creditors and provide a viable legal mechanism to deal with defaulted customers and discourage them from absconding which "traditionally has been hugely problematic" for lenders, he said.
The law gives the trustee the power to apply for a new financing which will be considered a preferential debt over existing unsecured debts of the customer, which will foster an additional lending business environment for banks, Al Ghurair said.
"The law permits a pre-emptive settlement regime that allows active creditor participation in the creation of restructuring scheme thereby giving lenders greater assurance of repayment since the process is oversee by the courts."
He said under the new law, the creation of the Financial Restructuring and Bankruptcy Committee will assist customers with restructuring their debts rather than forcing them to file for immediate bankruptcy and thereby protecting their ongoing businesses.
"A preventive composition under the supervision of the courts, will allow a customer to agree for a settlement with creditors, and the terms, if approved by the court, will be binding on all parties. The law allows a customer/debtor to apply for new financing on a secured or unsecured basis if it is deemed essential for the continuation of the customers' business under the supervision of the court appointed bankruptcy trustee. This will encourage business continuity for defaulted customers," he said.
He argued that an individual bankruptcy law, which is also in the pipeline, would be "suicidal for the UAE" if there is no agreement with the expatriate's home countries.
"Ultimately, no customer will be able to borrow money from retail. It is also good for the individual. Around 90 per cent of our borrowers are expats. If they borrow here, declare bankruptcy, are protected, they go home, they can start again there," he said.
The feasible option is that if a customer is declared bankrupt here, he should be simultaneously declared so in his home country. UAE banks will treat differently individuals of those countries that make such an agreement, and if those home countries do not sign with us, then banks will refrain from lending to those individually. It will completely change our retail-banking environment," said Al Ghurair.