'Modus Operandi' sets prece­dent for self-reg­u­la­tion

The Pak Banker - - FRONT PAGE -

The UAE Banks Fed­er­a­tion said it will stop le­gal ac­tion against small and medium-sized busi­nesses for 90 days and work with them to re­struc­ture their out­stand­ing debt. Due to a slow­down in the econ­omy, many SMEs that be­long mainly to the food and bev­er­age and oil and gas in­dus­try, have been reg­is­ter­ing losses, re­sult­ing in bad debts for banks. This has moved the bank­ing body, which in­cludes 49 mem­ber banks, to an­nounce a mora­to­rium of 90 days be­fore any le­gal ac­tion is ini­ti­ated. Dur­ing this time, the banks will also be look­ing at ways to re­struc­ture the bad debt so that trou­bled busi­ness will be able to be­gin re­pay­ing loans.

"This so­lu­tion is a bet­ter so­lu­tion than the im­me­di­ate le­gal so­lu­tion if the cus­tomer is gen­uine, be­cause if he runs away to his home coun­try, his busi­ness comes to stand­still. It's bet­ter for the bank to pro­tect its in­ter­est by al­low­ing the cus­tomer to re­struc­ture his busi­ness," Ab­dul Aziz Al Ghu­rair, Chair­man of UBF, told jour­nal­ists.

"We want to sup­port our cus­tomers who are go­ing through dif­fi­cult times. We want to sup- port our econ­omy and cus­tomers, as long as they are gen­uine cus­tomers. We have put on the ta­ble a mini in­sol­vency law, which will give the cus­tomer the time, space as long as he's gen­uine," Al Ghu­rair added.

"The steps would be pru­dent, par­tic­u­larly to avoid pre­ma­ture en­force­ment on qual­ity or per­form­ing SME bor­row­ers, which was an is­sue dur­ing sec­ond half of 2015, Due to a global fall in com­modi­ties prices, in­clud­ing oil, many banks also be­gan cur­tail­ing lend­ing to the SME sec­tor.

A 90-day freeze for bank lenders gives time for a more con­struc­tive res­o­lu­tion of stressed SMEs with their own­ers, said Ni­tish Bho­j­na­gar­wala, as­sis­tant vice-pres­i­dent at Moody's In­vestor Ser­vices tolf me­dia.

The UBF has di­vided its SME clients into two, de­pend­ing on the amount of ex­po­sure with the bank. Those hav­ing loans less than Dh50 mil­lion will be viewed as small cus­tomers, while those hav­ing be­tween Dh100 mil­lion and Dh1 bil­lion in loans will be viewed as medium sized cus­tomer. The UBF it­self will han­dle re­struc­tur­ing re­quests from medium- sized clients and will shape a mech­a­nism to sup­port them. In the case of small busi­ness, the bank with the largest amount of out­stand­ing debt (if there is more than one bank with whom the cus­tomer has a loan) will be the lead bank that co-or­di­nates with the small-sized clients. This re­me­dial ac­tion was unan­i­mously sup­ported by all the mem­ber banks with the sup­port of the cen­tral bank, Al Ghu­rair said.

"Banks want to gen­uinely help the cus­tomer, and the cus­tomer has to be gen­uine in try­ing to re­pay the bank and help them to re­build the busi­ness once again," he said.

The to­tal ex­po­sure to small en­ter­prises from the banks is 3-5 per cent of the to­tal bal­ance sheet of the bank­ing sys­tem, Al Ghu­rair said. "The ex­po­sure to this sec­tor is very small and in any econ­omy, in any cy­cle, there al­ways will be some­thing like this. We want to show the world that we are proac­tively putting so­lu­tions on the ta­ble," he said, adding "this is a moral agree­ment that all banks will abide by."

The so called ' Modus Operandi' so­lu­tion that the UAE Banks Fed­er­a­tion has pro­vided for re­struc­tur­ing of loans to dis­tressed SMEs could be a prece­dent for self-reg­u­la­tion, its chief Ab­dul Aziz Al Ghu­rair said on Mon­day.

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