The number of cheques returned as invalid fell last year, as the economy recovered and UAE residents found it easier to pay down debts.
Payments worth Dh46.8 billion (US$12bn) were returned as invalid last year, representing a decline of 15.3 per cent compared with a year earlier, according to data published yesterday by the Central Bank.
A total of 1.4 million cheques failed during 2012, a fall of 8.5 per cent compared with the previous year. The figure includes bounced cheques as well as torn, undated or illegible ones.
Cheques were used for transactions worth Dh1.1 trillion, a decline of 4 per cent compared with a year earlier.
Bankers and economists said the declining rate of cheque default pointed to a more sophisticated market than the one that existed before the financial crisis, as well as improved macroeconomic conditions.
"People, banks and regulatory authorities are still more circumspect about the decisions they make and what they do now than they did prior to 2008," said Tom Smith, the head of retail banking at United Arab Bank. "The trick is to make sure that we keep that."
A "solid and consistent" job market was also helping consumer finances to recover, said Liz Martins, an economist at HSBC Middle East.
At the same time, the financial sector was better positioned to increase lending to consumers, having rebuilt balance sheets throughout the past year.
"Banks have been a bit risk-averse for the past four years, but 2013 is the year when they get back to lending," she said.
Failed cheques represented one in every 20 presented for payment, the data shows, although the proportion of money lost fell to four fils out of every Dh1 paid via cheque.
The Central Bank's figures do not distinguish between cheques that fail because of rips, tears or missing information, and those that fail because they bounce. Cheques must be used by law to back certain transactions, such as mortgage-interest payments.
Bouncing a cheque is a criminal offence in the Emirates, although UAE nationals were immunised from prosecution for security cheques last October as the result of a presidential decree. More than 1,000 Emiratis have since been freed from prison as a result.