The head of retail banking at the UAE's largest lender has backed moves to decriminalise bounced cheques. It follows a presidential decree protecting Emiratis from prosecution in such cases.
Asked whether he anticipated that all bounced cheques would eventually be dealt with through civil law rather than the criminal courts, Suvo Sarkar, the general manager of retail banking at Emirates NBD, said: "I think that's the direction we're going, the direction of travel. I think this is only the beginning of the phenomenon. As one of the largest banks in the system, we support it."
Last month, a presidential decree removed potential criminal liabilities from cheques written by UAE nationals used as security for payments to banks and finance companies
The same decree also freed all Emiratis currently detained or serving prison sentences for bouncing a cheque.
Last month, The National reported that 1.5 million cheques used for payment were returned as invalid last year, representing payments worth Dh55.3 billion (US$15.05bn).
The failure rate reflects about one bad cheque for every 20 used for payment, which has led bankers including Hussain Al Qemzi, the chief executive of Noor Islamic Bank, to call for the adoption of an alternative to cheques.
Ali Al Nuaimi, the head of the Federal National Council's finance committee, has also urged the Central Bank to review the high numbers of bad cheques in the financial system and propose a solution.
For the majority of the UAE's population, presenting a cheque for payment without sufficient funds to cover it remains a criminal offence, ostensibly as a deterrent to fraudsters and to ensure that banks are comfortable lending to the UAE's largely expatriate workforce.
Post-dated cheques must be used as security by law on certain transactions, a factor that led cheque failure rates to spike during the financial crisis as residents lost their jobs or were forced to leave the country.
Emirates NBD is the biggest bank in the country and a major participant in the cheque clearing and settlement system. Mr Sarkar said the bank clears about 35 per cent of all cheques in the UAE, so it would be sensitive to any change in the cheques law.
"It's important for the entire banking sector for this [decriminalising bounced cheques by nationals] to work … ," Mr Sarkar added.
"It has to work for both the banks and the consumers. And I think this is a definite step in the right direction."
The number of cheques used for payment last year totalled 28.4 million, for payments worth Dh1.2 trillion, according to data from the Central Bank.
That compares with 682 million cheques used in the United Kingdom during the same period, according to data from the Payments Council, a trade body.
Despite clearing about three times as many cheques per capita, only about 0.5 per cent of cheques used in the UK failed at the point of use. That failure rate compares to that of 5.5 per cent in the UAE.
Mr Sarkar said that stringent know-your-customer checks were the best way to avoid issues with cheques. He added that the development of a federal credit bureau would be the single biggest factor that could curtail the amount of bounced cheques in the financial system.
"No other country in the world has 90 per cent expatriates who can pack their bags and leave tomorrow. And there's no credit bureau yet. That fact won't change, but the second fact is about to change," he said.
"I think with that happening banks will have to take more informed decisions in terms of lending money. Once that comes in you'll see more rational behaviour from banks as well as consumers."
Many homeowners fled Dubai after the emirate's property downturn when banks, instead of preparing to negotiate with customers over mortgages on development properties bought at peak prices, threatened them with criminal prosecution in an effort to secure more favourable terms.