Reform of the UAE's bankruptcy procedures and corporate legislation is needed to support lending to small businesses, says banking chief.
UAE chief exec calls for change in bank law
The UAE's bankruptcy laws are hampering lending to businesses and are in urgent need of reform, the chief executive of one of the country's biggest international banks warns.
Outmoded laws and lack of a formal bankruptcy code were affecting banks' ability to lend, particularly to the entrepreneurs and small businesses that drive economic growth, said Jonathan Morris, the UAE chief executive of Standard Chartered.
"The frustration is that you look at this incredible physical infrastructure that we've built, in a place that continues to recognise the benefits of world-class infrastructure through rail, roads, ports and telecoms … and how that's made the UAE such an attractive investment destination," he said.
"But we need to make sure that intellectual infrastructure - the legal framework, accountancy, and corporate governance - keeps pace with current lending practices."
Standard Chartered, based in London, is the second-biggest international bank in the UAE.
A factor inhibiting credit growth among small and medium enterprises (SMEs) is the lack of formal procedures to take possession of assets of companies in default, Mr Morris added.
"One of the things strongly holding back the SME segment is that banks are asked to take an equity risk when they lend - traditionally SMEs provide their equity in property, a mortgage or the equipment and machinery that they've bought."
The lack of appropriate legislation meant small businesses, typically the riskiest part of a bank's corporate loan book, were even more of a fraught proposition.
For that reason, the bank's ability to expand lending to this segment was limited, Mr Morris said.
SMEs are regarded as the motor of job creation and economic growth.
The UAE ranks 33rd on the World Bank's ease of doing business ratings, scoring among the best in the world on some measures - such as fifth worldwide for trading across borders or sixth for ease of registering property.
But on other measures, the UAE falls down. The Emirates ranks 134th for the ability to enforce contracts and 151st for resolving insolvencies.