Interpreting Middle East Economic News and Analyzing Market Trends

Category: Banks

UAE government moves to decriminalize bounced checks, HSBC cries foul

The UAE government is moving closer to international standards for bank checks with a move to decriminalize the bouncing of checks.  It is currently a criminal offense to bounce checks in the country, which can lead to a prison sentence.  During the height of the financial crisis, many Emiratis and expatriates were thrown in jail for bouncing checks, which were used as security deposits on properties and to guarantee loans.  Emiratis, however, were given immunity from serving jail time for bouncing security checks last October. The move comes as the number of bounced checks has been falling, yet not all banks are willing to give up this practice.  Here’s more from a recent article in The National newspaper:

A new move to decriminalise bounced security cheques could backfire without a federal credit bureau in place, a top banker has warned.

It comes as other banks point to a rise in Emiratis missing payments on unsecured lending, which includes credit cards and personal loans, ever since a presidential decree immunised Emirati borrowers from going to jail over bounced security cheques.

If they are barred from using cheques as a security measure, banks may become unwilling to lend to individuals, said Rick Crossman, the head of retail banking and wealth management at HSBC Middle East.

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UAE bank begins offering accounts in Yuan

Emirates NBD became the first bank in the UAE to offer accounts to individuals denominated in Yuan, the Chinese currency.  Here are some highlights from a story in The National (click here for the full story):

The step will also help individual investors and small businesses to hedge against the risk of the yuan’s appreciation against the US dollar.

“The enormous increase in UAE’s bilateral trade with China and the resultant fast-growing Chinese-related business and resident population in the country have turned the focus significantly on the world’s second-largest economy,” said Suvo Sarkar, the general manager of retail banking at Emirates NBD.

Emirates NBD’s move is a reflection of the tightening in commercial ties between the UAE and China in recent years.

Two-way trade has advanced fivefold over the past decade from US$3.12 billion (Dh11.46bn) in 2002 to $15.6bn last year, according to data from the Ministry of Foreign Trade.

Banks operating in Dubai including HSBC, Standard Chartered and Mashreq, have begun offering business banking services denominated in Yuan. Emirates NBD, Union National Bank and National Bank of Abu Dhabi have opened offices on the Chinese mainland.

Last March, Emirates NBD became the first bank in the Middle East to issue a bond sale denominated in Yuan.

The bank’s plans also link into a wider bid by Dubai to become an offshore trading centre for the currency.

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Saudi Arabia and the UAE handle bad debts differently, yet both come to the same wrong conclusion

Consumer finance has been on the rise in Gulf countries over the past decade.  Banks have been too eager to give out auto loans, unsecured loans, credit cards and other forms of credit.  This has been a good source of income for banks.  Since the financial crisis, banks have been refocusing on expanding their consumer finance business as they look to reduce their dependence on governments for business (see older post).


With interest rates so low (a typical savings account pays 0.5% per year), consumer loans are still on the high end in the Gulf.  A low annual interest rate on credit cards in the region is 24%, regardless of your credit history with the bank.  Some banks, such as Citibank offer credit cards with annual interest rates as high as 36% (is this legal in any other part of the world?).  Auto loans are on the cheaper side ranging from 4%-9% or above depending on the bank.  Interest rates on personal unsecured loans range from 6% to well above 10% depending on the borrower’s income.  It’s no wonder then that consumer loan defaults have been rising.


Both Saudi Arabia and the United Arab Emirates (UAE) have seen rising bad debts on bank balance sheets over the past few years.  Though their approach to handling these bad loans were different, they both arrived at the same wrong conclusion.  First, here’s a report from Arab News on Saudi Arabia:


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Gulf banks go shopping in the MENA region

After four years of slow growth or no growth, banks in the Gulf are looking for ways to expand their market reach.  Banks in cash-rich Qatar can only grow so much in their tiny home market, whereas banks in the UAE have a larger customer base to work on.  However, banks in the UAE have been revering from the property bubble and per Central Bank statements, need to reduce their exposure to the government (see older post).

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UAE Central Bank holds off on tougher regulations stating banks are in a good position

Is the headline confusing?  Don’t worry, it confused me too.  Allow me to elaborate.  On January 1, 2013, the UAE Central Bank was supposed to begin enforcing new capital and liquidity ratios for banks in the country.  However, on December 17, 2012, the Central Bank postponed these new regulations until further notice.  In a country where the media is hungry for local news, this story was barely covered and wasn’t even mentioned by international media outlets.  Here’s more from the local paper Khaleej Times:

“The UAE Central Bank has postponed new regulations that limit commercial bank lending to governments and their related entities for further review in a move that is expected to give lenders sufficient time to come to grips the requirements.

The regulator also has put off the implementation of another rule on banks’ liquidity ratios. The rules, originally scheduled to come into effect on January 1, had been designed to help banks withstand market disruptions and avoid a concentration of debt payments.


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