x Abu Dhabi, UAEFriday 21 July 2017

UAE banks need more time before bounced cheques decriminalised

Bounced cheques:  Banks must have a viable alternative to cheques before a full decriminalisation can become reality, says the head of the banking industry trade body.

Abdul Aziz Al Ghurair, the chairman of the Emirates Banks Association, said any moves to ease criminal penalties for expatriates whose cheques bounce should be phased in. Satish Kumar / The National
Abdul Aziz Al Ghurair, the chairman of the Emirates Banks Association, said any moves to ease criminal penalties for expatriates whose cheques bounce should be phased in. Satish Kumar / The National

Banks must have a viable alternative to cheques before a full decriminalisation can become reality, says the head of the banking industry trade body.

Abdul Aziz Al Ghurair, the chairman of the Emirates Banks Association, said any moves to ease criminal penalties for expatriates whose cheques bounce should be phased in to allow a period of adjustment for consumer lenders.

"There has been thinking in the UAE of decriminalisation of postdated bounced cheques across the board, but you cannot do that without finding an alternative instrument," he said.

"If there is a proper system and an alternative system maybe the economy will go towards that, but it has to be introduced over a period of time," said Mr Al Ghurair, who is also the chief executive of Mashreq and the chairman of the DIFC Authority.

A consensus has emerged among the UAE's financial services community and leading politicians that the UAE's laws governing bounced cheques are in need of reform.

A presidential decree issued last month immunised UAE nationals from prosecution by banks and finance companies when a security cheque bounces.

Since then, more than 400 previous defaulters have been released from prison, the Wam news agency reported. Writing a bounced cheque remains a criminal offence for the majority of the UAE's residents.

Mr Al Ghurair declined to comment on what adjustments Mashreq had made to its lending practices in the wake of the presidential decree.

The Government plans to study whether bouncing a cheque should remain a criminal offence for expatriates alongside the development of a federal consumer protection strategy for 2014-2016.

A total of 1.5 million cheques failed at the point of use last year, representing payments worth Dh55.3bn (US$15bn).

Emirates NBD, the biggest bank in the country, recently gave its backing to a full decriminalisation, while the head of the Federal National Council's finance committee has called on the Central Bank to study the high failure rate of cheques.

Last month, the Central Bank met commercial lenders to discuss the implementation of a federal direct debit scheme next year, which bankers expect will reduce the number of cheques used.

The Government also intends to study whether a system of loan guarantees for unsecured lending to expatriates could give banks an equivalent method of security that they currently gain from post-dated cheques, Ali Al Dhaheri, the manager of legal affairs at the Ministry of Presidential Affairs, said last week.

ghunter@thenational.ae