Dubai: A softening in the UAE economy has led to a surge in small and medium-sized businesses defaulting on debt, dragging on banks’ performance and highlighting the need for a new bankruptcy law.
In a country where a bounced cheque risks landing the issuer in jail, there have been hundreds of recent cases of expatriate business owners fleeing the country, or “skipping”, with unpaid debts.
Others who remain have defaulted on debt and in some cases been arrested. Bankers estimate the total amount of defaults in the past three to four months at three to four billion dirhams ($817 million-$1bn), up significantly from a year ago.
SMEs contribute 60 per cent of UAE’s gross domestic product but banks have long seen them as risky, partly because of their sometimes poor accounting standards.
However, they proved profitable customers in recent years as the local economy boomed – a situation that has reversed this year as a slow global economy and weak oil prices dampened government and consumer spending. Some SMEs are also struggling amid choppy commodities markets, especially traders of rice and other foodstuffs, as prices have fallen.
“Banks are panicking and are recalling loans or stopping lending,” said a banker, citing the launch late last year of the country’s credit bureau as an added factor.
&uuid=(email))