November 16, 2015 / 3:32 PM / 3 years ago

More than $1 bln in "skips" hit UAE banks, coordinating to stem flow

* Around 5 bln dirhams in SME “skips” in 2015 -banking official

* Banks working together to stem flow of debtors

* Govt keen to press ahead with bankruptcy law -govt official

By Tom Arnold

DUBAI, Nov 16 (Reuters) - Banks in the United Arab Emirates are working together to try to stem the number of small business owners fleeing the country with unpaid debt, a trend that has already reached around 5 billion dirhams ($1.4 bln) this year, a senior banking official said.

Small and medium-sized enterprises (SMEs) have come under pressure in recent months amid a gradual drying up of liquidity in the banking system due to the weak oil price and slowing economic growth.

As a result, some business people have chosen to “skip” the country, leaving behind unpaid debt, a situation that bankers say has grown significantly from last year, although they did not provide precise figures. In a country where under existing legislation, a bounced cheque risks landing the issuer in jail, many of those absconding fear the consequences if they stay.

“We want to take coordinated action on risk management,” UAE Banks Federation chairman Abdul Aziz al-Ghurair told reporters on the sidelines of a banking conference on Monday. “The idea is to allow the customer to pay for his debt and stay in town if they have a good intention. If they don’t have a good intention, then it is no good (the bank) spending time (with them), it doesn’t help.”

In recent years, the UAE government has been keen to encourage banks to lend to SMEs, which account for around 60 percent of the country’s gross domestic product. But third-quarter earnings from some of the smaller lenders pointed to problems in these loans.

UAE central bank governor Mubarak Rashid al-Mansouri, at the same conference earlier on Monday, said the government was keen to press ahead with a new bankruptcy law to help support SMEs.

Current bankruptcy rules are considered by lawyers to be outdated and largely untested, with few struggling companies using the legislation.

The cabinet approved a draft law in July but it still needs the support of the Federal National Council, the country’s legislative body, and the president.

Al-Mansouri also said the UAE would set up a credit guarantee scheme to help reduce the risk of default for potential lenders. He didn’t elaborate on the specific details of the plan. ($1 = 3.6726 UAE dirham) (Editing by Susan Fenton)

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