Banks plan to make recommendations to the Central Bank over how the Government should replace the laws that criminalise bounced cheques.
The Emirates Banks Association, an industry lobby group, said that it will petition the Central Bank to replace cheques as a means of backing loans with another system to protect banks and businesses.
Abdul Aziz Al Ghurair, the chairman of the association and the chief executive of Dubai's Mashreqbank, said at a summit in Dubai that a paper will be presented to the Government on the matter.
The cheque system "today is serving us well and without a holistic system in place it will be a catastrophe for business [if it is removed]" Mr Al Ghurair said, echoing similar concerns raised by HSBC.
"Everybody will move to cash and the whole trade will change from a semi-secure payment mode to cash," he added.
A total of Dh46.8 billion of payments made via cheques failed at the point of use last year, according to the Central Bank, which does not distinguish between cheques that are returned because of being damaged and other technical reasons, and those that bounce because of insufficient funds. A consensus has emerged among bankers, politicians and economists that the UAE's laws, which declare bouncing a cheque a criminal offence, are out of date and in need of overhaul.
Banks have sought to replace the security cheque by speeding up the creation of a federal credit bureau, which would assess customers' credit worthiness. The drive took a major step forward this week as the Emirates Identity Authority completed a registration of the entire population.
A presidential decree last October immunised Emiratis from serving jail time over bounced security cheques, but banks including Emirates NBD have backed a move towards full decriminalisation for all residents.
About 1,000 Emirati defaulters have been released from prison since the decree was made.
* With additional reporting by Bloomberg News